Chile’s Central Bank Holds Main Interest Rate, Peso Advances

The Chilean peso rose even after Chile’s central bank refrained from increasing interest rates. Good prospects for the nation’s economy and possibility of an interest rate hike in the future may be responsible for the currency’s gains.
The Central Bank of Chile decided to maintain its main interest rate at 5 percent. Analysts had different view on future monetary policy of the central bank. Some said that the bank would boost the rate in the second half of this year. Such outlook is justified by positive fundamentals in Chile. Chile’s central bank said in its statement that “domestically, economic activity grew faster in the first quarter than had been projected in the last Monetary Policy Report”.
Others, though, insist that the bank would not raise borrowing costs in the foreseeable future and may even lower them. They rationalize that the Chilean central bank would not dare to tighten the monetary policy amid uncertainty and financial turbulence caused by the European crisis. Indeed, that bank mentioned economic slowdown in Europe, as well as in other parts of the world, and its negative impact on commodity prices:

Internationally, the financial and fiscal situation in the Eurozone has deteriorated and uncertainty about its resolution has increased. In global markets, volatility and risk aversion have increased. In the past few months, economic indicators in the United States, China and other emerging economies have been weaker than market consensus. International commodity prices, particularly oil and copper, have continued falling, although their levels remain high.

Copper accounts for more than a half of Chile’s exports and the country is the biggest producer of the metal in the world.
USD/CLP fell from 504.6500 to 504.2500. The daily high was 505.0000 and the low was 503.60000.

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