Chile Tightening Set to Continue

Chile’s central bank is expected to hike its monetary policy rate today by 50bp, bringing it to 2.50%. In August the bank had also tightened by 50bp and since June has tightened the rate by 150bp. “Despite the breakneck pace of economic growth of recent months – which is likely to cause the output gap to close by the first half of next year – the central bank is unlikely to accelerate the pace of tightening (from 50 basis points) as inflation remains well behaved in part thanks to the strengthening of the real exchange rate,” Morgan Stanley says. Barclays, which also expects a 50bp hike today, sees the rate reaching 3.50% by the end of the year and 5.00% by Q2 2011.