Chile’s economy is weathering the global economic downturn with near full employment, indicating interest rates may remain at their highest level in almost three years, the central bank’s deputy governor said.
“My base scenario is that the economy is at a level consistent with potential output, so monetary policy should continue to be more or less in a neutral stance,” Manuel Marfan said in an interview in Santiago yesterday. “But there are risks, and it all depends on the size of the shocks.”
Policy makers have kept the key interest rate at 5.25 percent at their past five meetings as they wait to see if the European crisis will erode demand for commodity exports and damp inflationary pressures. The economy grew 3.4 percent in October from a year ago, the slowest pace since the aftermath of an February 2010 earthquake, the central bank reported yesterday.
“There are signals that there is a deceleration, but we have no evidence that it has been stronger than what we were expecting,” Marfan said. “If the deceleration hadn’t occurred, then monetary policy would have been much more contractive because our assessment is that we are in the neighborhood of full employment and GDP continues to grow dynamically.”
The jobless rate slid to 7.2 percent in the three months through October from 7.4 percent in the month earlier period.
Marfan, 58, joined the central bank board in 2003 and became vice president in 2009. He will become interim president of the bank if President Sebastian Pinera doesn’t name a successor to replace Jose De Gregorio before his term ends on Dec. 9.
After receiving his doctorate in economics from Yale University, Marfan was Chile’s finance minister from 1999 to 2000 and director of the economic development division at the United Nations’ Economic Commission for Latin America and the Caribbean for three years through 2003.
The central bank stands ready to reduce borrowing costs if the global scenario deteriorates, Marfan said. The key rate will fall to 4.75 percent by March and 4.5 percent by June, according to the median estimate of 58 investors and traders in a Nov. 22 central bank survey.
“We cannot avoid becoming a little bit wet if there is a huge storm in the rest of the world,” Marfan said.
Gross domestic product will expand as much as 6.75 percent this year before slowing to between 4.25 percent and 5.25 percent growth in 2012, according to central bank forecasts published in September. The bank is scheduled to publish new estimates this month.
Growth eased to 4.8 percent in the third quarter after reaching 8.25 percent in the first half of the year, according to calculations made by Bloomberg based on central bank data.
Chile’s benchmark equity index, the Ipsa, has rallied 14 percent since Oct. 4 when it touched the lowest level since December 2009. The spread on Chile’s 10-year bonds in dollars fell to 121 basis points yesterday from 128 basis points on Nov. 28 and 136 basis points on Nov. 23.