Chile’s economic activity unexpectedly rose in July on broad gains, signaling resilience in one of Latin America’s richest nations as traders bet the central bank will cut interest rates for a second time next week.
The Imacec index, a proxy for gross domestic product, increased 0.3% from the previous month, compared to the -0.2% median estimate of analysts in a Bloomberg survey. From a year prior, it rose 1.8%, the central bank reported on Friday.
Chile’s activity reading is the last major economic report before the central bank rate decision on Sept. 5, when it is expected to cut borrowing costs by 75 or 100 basis points. Board members are moving to ease monetary policy as demand cools and annual inflation slows toward target. GDP is seen contracting 0.3% this year, according to analysts surveyed by Bloomberg.
Commerce rose 1.4% on the month in July with gains across segments, while services ticked up 0.3%, according to the central bank. Industrial output increased 1.8%. On the other hand, mining dropped 1.5% during the period.
“We still think the economy will continue to gather momentum in the second half of this year, led by falling inflation — driving a pick-up in households’ real expenditure — and the boost from lower interest rates,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, said in a report.
Policymakers cut borrowing costs by 100 basis points to 10.25% in July, while indicating that future reductions may be smaller. Bank Vice President Pablo Garcia said in an Aug. 26 interview that their outlook is largely unaffected by a recent drop in the peso and floods in a key agricultural region.
The central bank will publish its updated inflation and growth forecasts, together with the likely trajectory of borrowing costs, in its quarterly monetary policy report on Sept. 6.
Today’s report “shows that private consumption is more resilient than expected,” Arturo Claro, an economist at Econsult in Santiago, wrote in a note. “That could lead to more persistent inflation.”
–With assistance from Giovanna Serafim.
(Updates with economist quotes starting in fifth paragraph)
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