SANTIAGO/LIMA, May 12 (Reuters) - Chile surprised markets
with a third aggressive rate hike on Thursday and Peru kept up
its monetary tightening as the Latin American countries fought
inflation expectations driven by global food and oil prices.
Chile's central bank defied forecasts for a more moderate
hike, raising its benchmark rate 50 basis points to 5.0
percent, its highest level in over two years. It said more
increases would be needed.
Peru raised rates by 25 basis points for a fifth month
running to 4.25 percent after higher international commodity
prices pushed its 12-month inflation rate slightly above the
ceiling of the central bank's target.
Pricey global food and fuel products, combined with fast
growth, have triggered rate hikes across the emerging world
although wild swings in commodity prices have left many central
bankers unsure about the outlook.
Chile is the most exposed of Latin America's economies to
volatile international oil prices, importing 99 percent of its
fuel needs.
Markets were betting heavily on a 25-basis-point increase
in Chile's rate CLINTR=ECI after private 12-month inflation
expectations eased back within the bank's 2 to 4 percent
tolerance range. The bank's inflation target is 3 percent.
"This is surprising. There are few output gaps, the labor
market is pretty tight and there's always the risk of supply
shocks. They have prioritized that over the peso," said Matias
Madrid, chief economist at Banco Penta in Santiago.
Analysts expected the peso to firm in the very near-term on
the back of the strong hike, but expected gains to be
transitory.
The Chilean central bank's rate statement made no mention
of the peso, which is trading near three-year highs despite a
$12 billion central bank currency intervention program for 2011
launched in January.
"Private inflation expectations show a reversal, though
remain above the target," Chile's central bank said in a
statement. "The board thinks additional increases in the
monetary policy rate will be necessary, the size and timing of
which will depend on the evolution of macroeconomic conditions
domestically and abroad."
Private inflation expectations have also eased in Latin
America's largest economy, Brazil, where many analysts see its
central bank sticking with more moderate 25-basis-point
increases.
Brazilian central bank president Alexandre Tombini said on
Thursday he was committed to bringing inflation as close as
possible to the center of the government's target this year.
Goldman Sachs expects Peru's tightening cycle will likely
continue until July, which would put the benchmark at 4.75
percent by mid-year.
Peru's economy is expected to grow about 7 percent this
year, despite uncertainty over the outcome of the presidential
election on June 5 that pits right-wing lawmaker Keiko Fujimori
against left-wing populist Ollanta Humala. They are nearly tied
in polls.
Chilean markets see inflation stable at 0.4 percent in May
and 12-month inflation through next May at 3.9 percent, a new
central bank poll of traders showed on Wednesday. Inflation in
the 12 months to April was 3.2 percent.
However, some analysts see inflation pressure picking up in
coming months after bread makers in the capital, Santiago,
threatened hefty price increases to make up for the higher cost
of imported wheat.
The International Monetary Fund's top regional official
warned on Thursday that Latin America's economic boom could end
in a "full-blown" crisis unless the region's governments
properly manage the situation.
Nicolas Eyzaguirre, the IMF's director for the western
hemisphere, urged policymakers to take steps to keep economies
from overheating by trimming public spending, maintaining sound
monetary policy and setting aside as much of the windfall from
the current boom as possible.
China on Thursday took new steps to cool its economy by
requiring banks to hold on to more of their deposits rather
than lend them out as loans.
with a third aggressive rate hike on Thursday and Peru kept up
its monetary tightening as the Latin American countries fought
inflation expectations driven by global food and oil prices.
Chile's central bank defied forecasts for a more moderate
hike, raising its benchmark rate 50 basis points to 5.0
percent, its highest level in over two years. It said more
increases would be needed.
Peru raised rates by 25 basis points for a fifth month
running to 4.25 percent after higher international commodity
prices pushed its 12-month inflation rate slightly above the
ceiling of the central bank's target.
Pricey global food and fuel products, combined with fast
growth, have triggered rate hikes across the emerging world
although wild swings in commodity prices have left many central
bankers unsure about the outlook.
Chile is the most exposed of Latin America's economies to
volatile international oil prices, importing 99 percent of its
fuel needs.
Markets were betting heavily on a 25-basis-point increase
in Chile's rate CLINTR=ECI after private 12-month inflation
expectations eased back within the bank's 2 to 4 percent
tolerance range. The bank's inflation target is 3 percent.
"This is surprising. There are few output gaps, the labor
market is pretty tight and there's always the risk of supply
shocks. They have prioritized that over the peso," said Matias
Madrid, chief economist at Banco Penta in Santiago.
Analysts expected the peso to firm in the very near-term on
the back of the strong hike, but expected gains to be
transitory.
The Chilean central bank's rate statement made no mention
of the peso, which is trading near three-year highs despite a
$12 billion central bank currency intervention program for 2011
launched in January.
"Private inflation expectations show a reversal, though
remain above the target," Chile's central bank said in a
statement. "The board thinks additional increases in the
monetary policy rate will be necessary, the size and timing of
which will depend on the evolution of macroeconomic conditions
domestically and abroad."
Private inflation expectations have also eased in Latin
America's largest economy, Brazil, where many analysts see its
central bank sticking with more moderate 25-basis-point
increases.
Brazilian central bank president Alexandre Tombini said on
Thursday he was committed to bringing inflation as close as
possible to the center of the government's target this year.
Goldman Sachs expects Peru's tightening cycle will likely
continue until July, which would put the benchmark at 4.75
percent by mid-year.
Peru's economy is expected to grow about 7 percent this
year, despite uncertainty over the outcome of the presidential
election on June 5 that pits right-wing lawmaker Keiko Fujimori
against left-wing populist Ollanta Humala. They are nearly tied
in polls.
Chilean markets see inflation stable at 0.4 percent in May
and 12-month inflation through next May at 3.9 percent, a new
central bank poll of traders showed on Wednesday. Inflation in
the 12 months to April was 3.2 percent.
However, some analysts see inflation pressure picking up in
coming months after bread makers in the capital, Santiago,
threatened hefty price increases to make up for the higher cost
of imported wheat.
The International Monetary Fund's top regional official
warned on Thursday that Latin America's economic boom could end
in a "full-blown" crisis unless the region's governments
properly manage the situation.
Nicolas Eyzaguirre, the IMF's director for the western
hemisphere, urged policymakers to take steps to keep economies
from overheating by trimming public spending, maintaining sound
monetary policy and setting aside as much of the windfall from
the current boom as possible.
China on Thursday took new steps to cool its economy by
requiring banks to hold on to more of their deposits rather
than lend them out as loans.
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