Chile's central bank held its benchmark overnight lending rate steady at 5.0 percent, as expected, and said future changes to its policy rate would depend on the "implications of domestic and external macroeconomic conditions on the prospects for inflation."
The Central Bank of Chile, which has held rates steady since a 25 basis point cut in January 2012, said the economy was slowing down but this was mainly affecting investments while private consumption remained dynamic and the labor market was tight.
Headline and underlying inflation were close to 1.0 percent and inflation expectations were around the central bank's 2-4 percent target, the central bank added.
In May Chile's consumer prices were unchanged from April for an annual inflation rate of 0.9 percent, down from 1.0 percent, the lowest rate since January 2011 when a new method was introduced, while core inflation was 0.1 percent.
The central bank said global financial conditions had become more restrictive, especially for emerging economies, "in part due to the expectation of an early withdrawal of monetary stimulus in the United States."
In addition, growth prospects for China were lower and recession continues in the euro zone.
The central bank did not make any specific reference to the Chilean peso, but said "the dollar appreciated in the international markets, particularly regarding the currencies of emerging economies."
At its previous meeting on May 16, the central bank had made a specific reference to the depreciation of the peso. But in the two previous statement from April and February, the central bank had mentioned the appreciation of the peso.
In the central bank's background paper to the policy meeting, it noted that the peso had declined by 5.6 percent from the May policy meeting to 504 per U.S. dollar.
Like other emerging markets, Chile's currency has been hit by the prospect of a wind-down of asset purchases by the Federal Reserve, with the global flow of money moving back toward the U.S.
Chile's economy has been slowing in recent months and minutes from the central bank's May meeting in May showed that the policy committee for the first time since June 2012 had considering cutting its lending rate, locally known as TPM.
Chile's Gross Domestic Product was rose 0.5 percent in the first quarter from the fourth, the slowest quarterly growth rate since the third quarter of 2011, for annual growth of 4.1 percent.
The central bank has forecast that the economy will expand between 4.5 and 5.5 percent this year, down from 5.6 percent in 2012.
The central bank's own survey showed that analysts expect a rate cut in July with rates falling to 4.5 percent by December.