Chile Raises Rate to 1.5% as Growth Threatens Inflation Target

[Judi Lynn]

Chile Raises Rate to 1.5% as Growth Threatens Inflation Target
July 15, 2010, 6:18 PM EDT

July 15 (Bloomberg) -- Chile’s central bank raised its benchmark interest rate for the second straight month as growing domestic demand pushes inflation back up toward policy makers’ target.

The five-member policy board, led by bank President Jose De Gregorio, raised the overnight rate by a half-point to 1.5 percent from 1.0 percent, matching the forecasts of all but one of the 16 economists surveyed by Bloomberg. One economist predicted a quarter-point increase.

The bank’s policy committee acted after the economy grew at the fastest pace in almost five years in May and industrial output rose for the first time since a February earthquake diminished productive capacity. The economy’s faster-than- forecast recovery has pressured the central bank to raise rates to keep inflation within its target of 2 percent to 4 percent, said Rodrigo Aravena, an economist with Banchile Inversiones.

“All the elements were there for a half-point increase: the economy’s strong performance in May and the increase in underlying inflation,” he said in a telephone interview from Santiago. “A 50 basis-point increase is designed to bring interest rates back to normal levels.”

More:
http://www.businessweek.com/news/2010-07-15/chile-raises-rate-to-1-5-as-growth-threatens-inflation-target.html

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Time to privatize!