Chile Central Bank To Cut Rates Only 25BPs More In 2012 - BBVA
February 21 2012 - 11:39AM
Dow Jones News
Chile's central bank will cut the benchmark overnight rate only
by another 25 basis points this year as inflationary pressures will
only abate in the fourth quarter, Banco Bilbao Vizcaya Argentaria
Chile SA (BBVACL.SN) chief economist Alejandro Puente said
Tuesday.
After holding its benchmark rate at 5.25% for about half of
2011, in January the Central Bank of Chile cut the rate by 25 basis
points to 5%. It was the bank's first rate reduction since
2009.
"It doesn't currently make much sense to consider expansive
monetary policy," Puente told reporters, noting that he expects the
benchmark rate to end 2012 at 4.75% and hold there through
mid-2013.
BBVA Chile, the local unit of Banco Bilbao Vizcaya Argentaria SA
(BBVA, BBVA.MC), sees inflation ending 2012 at 3.1%, in line with
the central bank's 3% target, but the retreat from current levels
at 4.3% will be slow and will be concentrated in the final three
months of the year, he added.
For the consumer price index to retreat, however, domestic
demand must begin to lose steam in coming months.
Analysts had projected demand would decelerate in December but
retail sales--considered a strong measure of demand--unexpectedly
surged 10% on the year.
BBVA sees growth in private consumption slowing down to 4.5%
this year, versus a 9% year-on-year increase in 2011.
In addition to inflationary pressures fueled by high imported
fuel prices and resilient domestic demand, a tight labor
market--which has resulted in increased salaries--has also given
the central bank less room to reduce rates, Puente said.
BBVA's outlook of only one more quarter-of-a-percentage-point
cut differs from the views of other analysts, who see the benchmark
rate ending 2012 in a range of 4% to 4.5%.
Gross domestic product, the bank said, will likely grow 4% on
the year in 2012, down from an expected gain of 6.3% in 2011. The
central bank will release full-year 2011 GDP data in March. In the
January-September 2011 period, GDP grew 7% on the year.
While remaining healthy, the Chilean economy still faces
external risks, stemming especially from events in Europe.
"Given the latest developments out of Greece, there's a
much-lower probability of an adverse scenario, but the risks
haven't disappeared," Puente said.
He noted that there is still political risk in Greece ahead of
the country's April elections as well as risk of a disorderly
default and contagion into Portugal.
-By Carolina Pica, Dow Jones Newswires; 56-2-715-8919;
carolina.pica@dowjones.com
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