'Currency wars' pose dilemma for Chilean policymakers

Chile’s Central Bank faces a difficult balancing act between cooling buoyant domestic demand, which suggests a need for tighter monetary policy, and taming a strong currency, which is already weighing on external competitiveness and which would appreciate further if interest rates were hiked. We suspect that concerns over the strength of the peso will dominate in the near-term and expect interest rates to remain at 5.0% until at least mid-year.