Chile's central bank held its policy rate steady at 4.0 percent, as expected, and reiterated that it will "consider the possibility of making additional cuts to the policy rate in line with the evolution of domestic and external macroeconomic conditions and its implications on the inflationary outlook."
The Central Bank of Chile, which last month cut its rate for the fourth time since October 2013 for total reduction of 100 basis points, added that recent data had confirmed the "low dynamism of output and demand," in line with the bank's projections from March.
In its latest quarterly monetary policy report the central bank cut its 2014 growth forecast to between 3.0 and 4.0 percent from a previous 3.75 to 4.75 percent and yesterday the bank said its latest poll on bank credit showed that conditions for corporate loans became more restrictive in the first quarter and demand for consumer credit also tightened.
Chile's Gross Domestic Product contracted by 0.1 percent in the fourth quarter of 2013 from the third quarter for annual growth of 2.7 percent, down from 5.0 percent in the third quarter. The unemployment rate rose marginally to 6.13 percent in February from 6.12 percent in January.
The International Monetary Fund projects 2014 growth of 3.6 percent and 4.1 percent in 2015, down from 4.2 percent in 2013.
Chile's inflation rate accelerated to 3.5 percent in March from 3.2 percent in February and 2.8 percent in January. The central bank attributed the March rise to higher prices of foods and fuel along with the depreciation of the peso, but inflation expectations remain around 3.0 percent.
The central bank, which targets inflation of 3.0 percent, plus/minus one percentage point, has revised upwards its forecast for inflation to end 2014 around 3 percent, with a temporary rise to between 3.5 and 4.0 percent.
In 2013 inflation averaged 1.8 percent and the IMF forecasts average 3.5 percent this year.
The central bank said moderate growth in emerging markets is continuing, a point that is relevant for the prices of copper and other metals. Chile is the world's largest copper exporter and has been affected by a slowdown in global demand, especially from China.
Chile's peso began depreciating in May last year, along with most other emerging market currencies, and continued to decline through early March. But since March 11 when it hit 575.5 to the U.S. dollar, it has rebounded, trading at 557.3 today. But for the year, the peso is still down 5.7 percent.