Friday, July 12, 2013

Chile holds rate, may soon cut on lower growth, inflation

    Chile's central bank held its benchmark overnight rate steady at 5.0 percent but said it may cut its rate in coming months due to an expected fall in economic growth and inflation.
    The Central Bank of Chile, which has held rates steady since January 2012, said recent information shows that economic output and demand is continuing to slow down, especially investment, but the labor market is still tight.
   "Consumption has remained strong, but the evolution of credit conditions and confidence surveys suggest this variable will lose momentum," said central bank said. In its June Monetary Policy Report, released on July 1, the bank lowered its 2013 forecast for growth and inflation.
    "The consolidation of the trends outlined in the last Monetary Policy Report could call for adjustments to the monetary policy interest rate in the coming months," the bank said.
    In the policy report, the central bank cut its 2013 growth forecast to 4-5 percent from a previous estimate of 4.5-5.5 percent and its inflation forecast to 2.6 percent from 2.8 percent.
    Chile's economic growth has been slowing in recent months, with the annual rate of its Gross Domestic Product in the first quarter slowing to 4.1 percent from 5.7 percent in the previous quarter.
    Chile's inflation rate rose to 1.9 percent in June from 0.9 percent in May, getting closer to the central bank's tolerance range of 2-4 percent. The central bank said inflation expectations remain around its target.
    The central bank took note of the recent tightening in international financial conditions, especially in  emerging market economies, following signs of an earlier-than-expected withdrawal of monetary stimulus in the United States.


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