Chilean Central Bank President Vittorio Corbo said that the nation's inflation rate is too low to merit an increase in the bank's benchmark lending rate.
Corbo said in an interview with Bloomberg News in London that the bank will only raise interest rates when there's a risk that the annual inflation rate rises above 3 percent.
“That's not a problem today,” said the 61-year-old central banker.
Inflation in the 12 months through May was 0.6 percent, less than the bank's annual target rate of about 3 percent. Slowing inflation led the bank to cut its benchmark lending this year to a record low of 1.75 percent.
Central bankers probably will begin to raise rates later this year on expectations that stronger consumer spending will lead companies to increase prices in 2005, said Luis Aliste, who helps to manage $1.2 billion at insurer Cia. de Seguros de Vida Corp SA in Santiago. Corbo said that the inflation rate will be about 2 percent at the end of this year and 3 percent in the second half of 2005.
“We don't know when the moment will be that we'll begin to reduce the excessive monetary stimulus we've put on our economy to help to bring inflation toward 3 percent,” Corbo said.
Chile's economy this year will expand as much as 5.5 percent, the central bank said this month, outpacing average growth in Latin America that the United Nations forecasts at about 4 percent. Higher exports have boosted growth.
Copper
Corbo said that prices for copper, Chile's top export, probably will slip next year following efforts by China's government to slow its economy. Demand from China, the largest user of copper, have led futures prices in New York to rise 49 percent in the past 12 months.
“Everything makes it foreseeable that this good price won't be able to be maintained for much time, especially now that China is decelerating in an orderly way,” Corbo said.
Prices for copper for delivery in September slid 3.25 cents, or 2.7 percent, to $1.1675 a pound on the Comex division of the New York Mercantile Exchange.
Source: www.bloomberg.com