WRAPUP 2-Chile economy surges in April, rate hike looms

* Month-on-month IMACEC up 8.2 pct, yr-on-yr up 4.6 pct

* May trade surplus shrinks 45 pct to $729 mln

* Stronger growth reaffirms cenbank June rate hike
(Recast, adds central bank rate expectations and quake
impact)

By Antonio de la Jara

SANTIAGO, June 7 (BestGrowthStock) – Chile’s economy surged in
April, surpassing market expectations as key industries recover
from a massive Feb. 27 quake and reaffirming expectations for a
central bank benchmark rate hike in June.

The IMACEC economic indicator surged a seasonally adjusted
8.2 percent in April versus March. While on a year-on-year
basis the economy rose 4.6 percent in April, way above the 2.5
increase the market expected as the impact of the quake starts
to fade and the Chilean economy forges ahead.

The question for many investors is the impact of strong
economic indicators on central bank interest rate policy.

“If tomorrow’s May CPI (inflation) release surprises the
market on the upside the central bank could be encouraged to
initiate the rate hiking cycle with a 50bp (basis points),
rather than a 25bp (basis points) hike,” said Alberto Ramos a
senior economist with Goldman Sachs in New York.

Analysts expect inflation to rise 0.3 percent in May,
according to a Reuters poll. For a PREVIEW click
on[ID:nN04137745]

Chile’s central bank said it had considered raising its key
rate by 25 basis points in May, but board members voted
unanimously to hold the rate steady, citing turbulence in
Europe and domestic inflation, minutes showed on Monday.
[ID:nN31251895].

The bank, which cut its 2010 growth estimate to a range of
4.25 percent to 5.25 percent after the quake, said in its May
13 interest rate decision announcement that the time to
normalize monetary policy was drawing near.

Chile’s peso (CLP=: ) (CLP=CL: ) was unfazed by the data, as
the market had factored in positive figures, traders said.

QUAKE’S UPSIDE IMPACT

The 8.8-magnitude quake killed more than 500 people and
ravaged cities and key industries like forestry, steel smelting
and oil refining in south central Chile. However, the country’s
mainstay copper industry was mostly unharmed by the tremor.

Damage stemming from the quake led to a economic
contraction of 2.9 percent in March from last year, the bank
said last month. On a seasonally adjusted basis the economy
fell 6.9 percent in March from February.

Now, the quake’s impact is seen by some analysts as
positive, spurring local demand on the back of a multibillion
dollar private and government led reconstruction effort.

“After showing a larger than expected negative effect on
the economy, we believe this number will ultimately show the
impact of the earthquake as being positive for growth going
forward,” said Tony Volpon, a strategist with Nomura Securities
in New York.

However, the country’s May trade surplus shrank a
staggering 45 percent to $729 million in May from $1.321
billion registered during the same month last year.

Exports totaled about $5.437 billion during May, while
imports were around $4.707 billion. In April, Chile posted a
trade surplus of $1.362 billion, up 18 percent from the same
month a year earlier.

The price of Chile’s main export, copper, has taken a
serious hit in recent weeks on nagging fears a debt crisis is
spreading through Europe.

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( Editing by W Simon )

WRAPUP 2-Chile economy surges in April, rate hike looms