South America --- the land of interest rate cuts
Business
Chile slashes the rate to 8.25pc; Columbia joins the process
SANTIAGO/BOGOTA (Web Desk) – With Chile speeding up the pace of its interest rate cuts on Tuesday, Colombia too went for lowering the borrowing costs for first time in three years, as South America continues moving in a direction completely opposite to the rest of the world – including Pakistan but especially the developed nations.
Last week, Brazil's central bank has lowered its benchmark interest rate by 50 basis points for the fourth time in a row and signaled that it would keep cutting rates at that pace beyond its next meeting in January.
Despite acknowledging cooling inflation and improvements in the global economy, the central bank held a steady outlook for its next steps, frustrating some economists who expected policymakers to open the door for bigger rate cuts.
The bank's rate-setting committee, known as Copom, unanimously lowered the Selic policy rate to 11.75 per cent, in line with the forecast of all 41 economists polled by Reuters.
Read more: Latin America swimming against the tide as Uruguay likely to go for another rate cut
In the case of Chile, the central bank cut its benchmark interest rate by 75 basis points to settle at 8.25pc in a unanimous decision, as the nation's monetary authority sees inflation pressures easing.
In a statement, the central bank said its board believes that bringing inflation in the world's largest copper producing nation to its 3pc target will require further cuts in the monetary policy rate.
"The size and timing of the cuts will take into account the evolution of the macroeconomic scenario and its implications for inflation," the bank said in a statement, noting that while inflation has declined last month still exceeded forecasts.
Chile's November inflation hit 0.7pc while economists polled by Reuters had forecast just 0.2pc. The annual inflation continued to slide, reaching 4.8pc – its lowest level since August 2021.
The central bank maintained its expectation that the rate of rising consumer prices should converge to the target in the second half of 2024, though core inflation will likely get there in the first half of next year.
Since its last monetary policy meeting, it said, the peso has appreciated and long-term interest rates have fallen "significantly".
The interest rate reduction was larger than the 50-basis-point cut estimated in a central bank poll last week by traders, who also forecast the benchmark rate would reach 5.0pc within 12 months.
