Brazil & Southern Cone - September 2007 (ISSN 1471-4431

The central bank raised interest rates for the third time in three months in mid-September. Each time the bank has increased rates by 0.25%. Overnight lending rates now stand at 5.75%. 

The central bank has become alarmed by rising inflation, especially of food prices. The inflation rate for the past 12 months hit 4.7% in August. The central bank's target is for an inflation rate of 3% in 2007. Most local economists expect the bank to raise rates to 6% before the end of the year to deal with inflation. Interest rates last hit 6% in January 2002.

The problem with using interest rates to squash inflation is that the exchange rate strengthens. Chilean exporters are howling about their margins, now that the dollar has fallen below Ch$515 to the dollar. The dollar started 2007 at Ch$540. If the US economy continues to labour, the dollar could easily dip under Ch$500 by the end of the year.

Trade: In the first half of 2007 export revenues at US$34.4bn were 20% up on the same period of 2006. Imports, at US$19.8bn in the first half of 2007 were 16% up on the same period of 2006. The trade surplus jumped from US$11.5bn to US$14.5bn or 26%. Imports of capital goods rose by slightly more than the rate of increase in the overall import bill: capital goods imports were up by 17%, year-on-year, at US$4.52bn at the end of August. 

Copper exports: In the year to 7 September, copper exports were up by 14% at US$25.31bn. The country's total exports in this period came to US$47.8bn.

Foreign direct investment: This jumped from US$2.4bn in the first half of 2006 to US$4.9bn.
Inflation: In August consumer prices rose by 1.1% in the month bringing the annual rate to 4.7%. The accumulated rate for the first eight months of the year is 5%, twice the 2.4% rate recorded in 2006.