Chilean economy surprises on the upside

The Chilean economy surprised on the upside in September when it expanded 2.6% compared to a year ago.

This topped the 2.2% consensus forecast and marked a significant rebound from year-on-year growth of 1.1% in August.

Month-on-month, the economy advanced a seasonally-adjusted 1.1%, according to the central bank's monthly economic activity indicator, Imacec. The economy had recorded a seasonally-adjusted 1% m-o-m decline in August.

The central bank said in a release that growth in September had been driven by the services and manufacturing sectors.

TIME FOR ANOTHER RATE HIKE?

The better-than-expected Imacec and recent figures showing a resilient labor market could trigger another 25 basis points hike to the key interest rate later this month, said Goldman Sachs in a research note.

The central bank increased the key rate by 25bp last month to 3.25% for the first time since June 2011 to fight stubbornly high inflation - and said more hikes would come.

Annual inflation accelerated to 4.6% last year from 3% in 2013 and is expected to end this year at 4.5-5%. So-called imported inflation due to a significant depreciation of the peso has been a key driver of the acceleration.

Whether the central bank pulls the trigger again this month will ultimately depend on what upcoming inflation numbers show, Goldman Sachs added. The Chilean central bankers' next monetary policy meeting is on November 12.

The monetary authority will publish the third quarter GDP figures on November 18 (including potential revisions of Q1 and Q2 numbers). Local investment firm EuroAmerica said it expects the Q3 figures to show a 2-2.1% expansion.

The Chilean economy grew 1.9% last year and the IMF forecasts annual growth of 2.3% this year.