(Bloomberg) — Chile economists lowered their year-end interest rate forecasts after the central bank slashed borrowing costs by a jumbo 1 percentage-point and indicated further cuts are coming as inflation wanes.
(Bloomberg) — Chile economists lowered their year-end interest rate forecasts after the central bank slashed borrowing costs by a jumbo 1 percentage-point and indicated further cuts are coming as inflation wanes.
Policymakers will reduce the key rate to 7.50% by December, below the prior forecast of 8%, according to a central bank survey of economists published on Thursday. The next rate cut will be 100 basis points, while annual inflation is seen easing to 4.1% at year’s end, the poll showed.
Central bankers led by Rosanna Costa surprised investors with the one-point cut to 10.25% in July, saying that headline and core inflation had slowed faster than forecast. The move put Chile at the forefront of Latin America’s pivot toward easing, with Brazil also delivering a bigger-than-expected reduction this month. Still, some analysts warn that a recent drop in the peso and gasoline cost increases may cause price pressures to firm.
Read more: Chile Inflation Extends Slowdown With Big Rate Cuts UnderwayÂ
Annual inflation eased slightly less than expected in July, to 6.5%, according to statistics published on Tuesday. That’s down from a peak of more than 14% last year.
The peso touched a year-to-date low this week and has fallen 5.1% to 857.2 per dollar in the last month alone. A weaker currency stands to fan inflation by making imports costlier.
Still, that decline may prove to be transitory, as analysts in the central bank survey see the peso appreciating to 840 per dollar in two months.Â
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