SANTIAGO, June 13 (Reuters) - Chile's central bank kept its
key benchmark interest rate at 5 percent on
Thursday, as expected, highlighting that while economic growth
is easing private consumption remains robust.
Most in the market had forecast the bank would hold rates,
which have been frozen since a surprise cut in January 2012,
though some were betting on a reduction to stimulate the
export-dependent country's flagging economic growth.
'Domestically, incoming information reveals an ongoing
slowdown of output and demand,' the bank said in its statement.
'Investment has posted the sharpest adjustment, while private
consumption has remained strong,' it added.
Chile has enjoyed an economic boom on the back of massive
mining investment and ebullient consumer spending, but the
country's economic slowdown in recent weeks has triggered bets
that a rate cut to stimulate growth is forthcoming.
Analysts largely see the bank chopping 25 basis points off
the rate in July, while traders are pricing in the same cut in
three months, according to the central bank surveys released
In a Reuters poll last Friday, three of 18 analysts surveyed
expected an interest rate cut to 4.75 percent this Thursday,
while seven of 13 polled saw an interest rate cut by August.
For some analysts, the bank's concise post-meeting statement
didn't provide much guidance on future monetary policy.
'While (the bank) is demonstrating a more negative external
outlook, we don't see any change in the communique's bias or
signals of the rate's future direction,' said Matias Madrid,
chief economist with Banco Penta in Santiago.
Expectations for a cut sometime in the coming months marks a
turnaround from earlier this year, when many in the market were
pricing in a rate hike during the year to cool domestic demand.
The bank has forecast Chile will expand between 4.5 percent
to 5.5 percent this year, a slowdown from last year's 5.6
percent expansion. But growth in the first quarter came in at a
weaker-than-expected 4.1 percent versus a year earlier.
The bank mulled cutting its key rate in May, but said more
time was needed to draw a clear picture of the world's No.1
copper producer's economic trajectory.
Following the release of data on Friday that showed
inflation in the 12 months to May was the lowest since at least
January 2011, Finance Minister Felipe Larrain said a rate cut
was a 'viable option.'
The perceptions of an interest rate cut and the data on
slowing economic growth have helped ease the Chile's peso against the dollar over the five weeks. The currency's
strengthening earlier this year whose strength has been a major
headache for exporters in commodities-dependent Chile.
For a link to the Chilean central bank's statement, please
(Reporting by Santiago newsroom; Additional reporting by Moises
Avila; Writing by Alexandra Ulmer; Editing by W Simon and Diane
Keywords: CHILE CBANK/RATES
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