Interest-rate futures markets are betting that Chile’s central bank will chop more than 5 percentage points from its current 11.25-percent rate by the end of next year, according to Bloomberg.
When inflation reared in Chile, the central bank spiked rates by a total of 10.75 percentage points in one of the most aggressive rate-lifting campaigns in the world.
The country booked a 12.8-percent inflation rate in October, a second consecutive month of decline.
However, the higher rates have their downside.
Chile’s economy is likely to shrink by about .85 percent next year, according to a Bloomberg survey of economists, making it the only South American country expected to see a negative annual performance.
In addition, banks issued 3.1 percent fewer loans in October in another sign of a wobbling economy.
TREND FORECAST: With economies in decline and public pressure increasing, as we have forecast, central banks are likely to experiment with rate cuts to try to reawaken its drooping economy.
If and when it does cut its rate, the bank will do so by cautious steps, gauging the effect each time and measuring Chile’s economic performance against that of its trading partners and global economic health.
The bank will only cut rates rapidly and drastically if the country falls into a severe recession.