Benchmark Lending

Chile Central Bank Lifts Lending Rate for Third Month

By Matthew Walter

Sept. 13 (Bloomberg) -- Chile's central bank raised its overnight lending rate for the third time since July at its monthly meeting, seeking to tame inflation driven by food prices.

Policy makers lifted the benchmark rate today by a quarter percentage point to 5.75 percent, matching the expectations of 24 out of 25 economists surveyed by Bloomberg. Rising costs for wheat and dairy helped push Chilean consumer prices up 4.7 percent in August from a year earlier.

``Inflation is out of control, and expectations for inflation are out of control,'' said Pedro Tuesta, senior Latin America economist at 4Cast Inc. in New York.

Inflation may reach 6 percent by the end of the year, twice the central bank's target, according to Miguel Cardoso, head of economic research at BBVA Chile. Policy makers will have to lift the benchmark rate once more this year to 6 percent, he said.

The central bank said today that while the outlook for the Chilean economy remains generally positive, the risk of certain ``adverse scenarios'' has increased.

``In recent weeks, problems with international markets have intensified,'' the bank said today in a statement on its Web site. ``Prices for various food products remain high.''

Rising imports show that domestic demand remains strong, and labor costs are increasing, the bank said. While financing conditions remain ``favorable'' in Chile, policy makers will continue to monitor economic data as they consider future rate changes, according to the statement.

Peso Climbs

Chile's peso rose to a two-month high versus the U.S. dollar today on expectations the lending rate would increase, making peso-denominated investments more attractive.

The currency strengthened 0.3 percent to 513.28 per dollar today before the bank announced its decision.

``The central bank has been accumulating evidence that there is a higher risk of accelerating inflation,'' said Aldo Lema, an economist at Banco Security in Santiago.

The strengthening peso may begin to help curb inflation by next year by making imports less expensive, possibly giving the central bank room to leave the rate at 6 percent, Cardoso said. He expects the currency to strengthen to between 500 and 510 per dollar by December.