Chile's central bank moved to raise key benchmark lending rate in the hopes of stopping rapidly advancing inflation. The rate rise was by a quarter point. The rate stands at 6.25 per cent.
Inflation in Chile continues to climb with December's tally bringing the annual rate of inflation here for 2007 at 7.8 per cent. This is one of the fastest inflation gains in Chile in the last ten years.
Yet, economists feel that should the US slip into a recession, these emerging and growing economies of Latin America will tumble. Ahead of the decision to cut interest rates this week, Chile's markets fell with fear of the impending recession. Once the rate cut was announced, though, rebounds are seen.
Economists believe that this is an indication of what is likely to happen across the board should the US economy struggles more so. While many believed that these economies would be able to hold their ground, it may not be as likely to happen, based on reactions in markets regarding rate cuts.
Additionally, Chile's central bank made note that it was possible that rate increases could be necessary again to calm inflation.
