Chile’s economy expanded more than analysts expected in July, while wages grew at the fastest in five years, sparking the biggest rally in the peso since May.
The Imacec index, a proxy for gross domestic product, rose 0.9 percent from a year earlier, the central bank said today, more than double the 0.4 percent median forecast of 14 economists surveyed by Bloomberg. Economic activity expanded 0.5 percent from the previous month.
Wages jumped 7.3 percent in July from a year earlier, up from 6.6 percent the month before and 5.5 percent at the end of last year.
Central bank President Rodrigo Vergara yesterday called for calm over the slowdown in Chile’s economy, saying that gross domestic product is still expanding and that growth will accelerate next year.
Changes in monetary policy, which have pushed the key interest rate down 1.5 percentage points to 3.5 percent in the past year, have been a suitable response to the slowdown, he said.
“It is important to reaffirm that we are living through a period of slow growth, but it is growth at the end of the day,” Finance Minister Alberto Arenas told reporters today.
The peso strengthened 1.3 percent to 585.5 per dollar at 11:12 a.m. in Santiago, while the two-year swap rate, a measure of interest rate expectations, rose seven basis points to 3.11 percent. The yield on 10-year government bonds in pesos climbed 22 basis points, the most since 2011, to 4.6 percent.
Market Expectations
“The data has been bad, but better than market expectations,” said Eugenioe Cortes, head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago.
“If there had been a negative number that would have implied a 50 basis point cut in September, now we’re looking at 25 basis points and another 25 before the end of the year.”
GDP (CLGDPNA%) rose 1.9 in the second quarter from a year earlier, down from 2.4 percent in the first quarter and 4.1 percent last year.
Manufacturing (CHIPMFGY) has contracted in nine of the past 12 months, while retail sales rose at the slowest pace in almost five years in July.
The central bank this week cut its growth forecast for 2014 for the fourth consecutive quarter. Policy makers, who meet to determine the overnight rate on Sept. 11, said GDP will expand 1.75 percent to 2.25 percent, compared with the previous estimate of 2.5 percent to 3.5 percent.
Rate Cut
“The most likely outcome for next week is a rate cut because the central bank is looking more to revive growth than control prices,” said Antonio Moncado, an economist at Banco de Credito e Inversiones in Santiago.
Arenas, who has called for a public-private alliance to boost growth, yesterday said that economic growth would accelerate by about 1.5 percentage points next year.
“Today’s Imacec and its subsequent effect on the market’s expectations for the policy rate, should impact on an appreciation of the exchange rate during the day,” Credicorp Capital economists Andres Osorio and Paulina Yazigi wrote today in a note to clients.
bloomberg.com
The Imacec index, a proxy for gross domestic product, rose 0.9 percent from a year earlier, the central bank said today, more than double the 0.4 percent median forecast of 14 economists surveyed by Bloomberg. Economic activity expanded 0.5 percent from the previous month.
Wages jumped 7.3 percent in July from a year earlier, up from 6.6 percent the month before and 5.5 percent at the end of last year.
Central bank President Rodrigo Vergara yesterday called for calm over the slowdown in Chile’s economy, saying that gross domestic product is still expanding and that growth will accelerate next year.
Changes in monetary policy, which have pushed the key interest rate down 1.5 percentage points to 3.5 percent in the past year, have been a suitable response to the slowdown, he said.
“It is important to reaffirm that we are living through a period of slow growth, but it is growth at the end of the day,” Finance Minister Alberto Arenas told reporters today.
The peso strengthened 1.3 percent to 585.5 per dollar at 11:12 a.m. in Santiago, while the two-year swap rate, a measure of interest rate expectations, rose seven basis points to 3.11 percent. The yield on 10-year government bonds in pesos climbed 22 basis points, the most since 2011, to 4.6 percent.
Market Expectations
“The data has been bad, but better than market expectations,” said Eugenioe Cortes, head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago.
“If there had been a negative number that would have implied a 50 basis point cut in September, now we’re looking at 25 basis points and another 25 before the end of the year.”
GDP (CLGDPNA%) rose 1.9 in the second quarter from a year earlier, down from 2.4 percent in the first quarter and 4.1 percent last year.
Manufacturing (CHIPMFGY) has contracted in nine of the past 12 months, while retail sales rose at the slowest pace in almost five years in July.
The central bank this week cut its growth forecast for 2014 for the fourth consecutive quarter. Policy makers, who meet to determine the overnight rate on Sept. 11, said GDP will expand 1.75 percent to 2.25 percent, compared with the previous estimate of 2.5 percent to 3.5 percent.
Rate Cut
“The most likely outcome for next week is a rate cut because the central bank is looking more to revive growth than control prices,” said Antonio Moncado, an economist at Banco de Credito e Inversiones in Santiago.
Arenas, who has called for a public-private alliance to boost growth, yesterday said that economic growth would accelerate by about 1.5 percentage points next year.
“Today’s Imacec and its subsequent effect on the market’s expectations for the policy rate, should impact on an appreciation of the exchange rate during the day,” Credicorp Capital economists Andres Osorio and Paulina Yazigi wrote today in a note to clients.
bloomberg.com
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