Chile’s central bank will cut its benchmark rates to stimulate the languid economy, potentially lifting the country-related exchange traded fund from its stupor.
The iShares MSCI Chile Capped ETF (NYSEArca: ECH) has dipped 0.9% year-to-date.
Chile’s central bank cut the benchmark interest rate by a quarter point to 3.75% Tuesday, reports Javiera Quiroga for Bloomberg.
Policy makers eased their monetary stance after economic growth missed economists’ expectations and smaller-than-expected rise in prices over June, with inflation slowing for the first time in eight months, also allowed more room for a rate reduction.
“Slow growth and more controlled inflation pushed the bank to cut,” Felipe Alarcon, chief economist at EuroAmerica, said in the article. “They put a greater weighting on the economic deceleration than on inflation.”
The annual inflation rate slowed to 4.3% in June year-over-year, compared to average forecasts of a 4.5% inflation rate and 4.7% in May. The central bank has an inflation target of 2% to 4%.
The Chilean government downwardly advised its growth projection for 2014 to 3.2%, compared to a 4.9% estimate in the budget plan earlier this year. The economy grew 2.3% in May year-over-year, compared to the 2.9% median estimates.
“Local economic indicators show that the pace of expansion of output and demand has slowed further,” the central bank said. “The board will consider the possibility of making additional cuts.”
Looking ahead, analysts don’t expect the cuts to act as an immediate solution.
“The economy is running close to half of its potential and as a result we continue to expect growth momentum to be modest at best,” Dev Ashish, Latin American strategist at Societe General, said in the article.
iShares MSCI Chile Capped ETF
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Max Chen contributed to this article.