Chile holds rate, repeats will consider further rate cuts

    Chile's central bank maintained its policy rate at 4.0 percent, as expected, and repeated that it "will consider the possibility of making additional cuts to the monetary 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 in March cut its rate for the fourth time since October 2013 for a total reduction of 100 basis points, also repeated that indicators confirm the low dynamism of output and demand, in line with the bank's projections in the March policy report
    Chile's inflation rate in April topped forecasts and rose to 4.3 percent from 3.5 percent in March, but the bank said this rise, which was associated with the depreciation of the peso, was temporary but would still be monitored with "special attention."
    In its March forecast, the central bank revised upwards its forecast for inflation to end 2014 around 3.0 percent, with a temporary rise to between 3.5 and 4.0 percent. In 2013 inflation averaged 1.8 percent.
    The central bank, which targets inflation of 3.0 percent, plus/minus one percentage point, added medium-term inflation expectations remain around 3.0 percent.

    The central bank's May survey shows expectations for inflation to ease to 3.7 percent in December and then further to 3.0 percent in December.
    The latest information also confirms the outlook for developed economies to continue to recover while moderate growth continues in emerging markets.
    "With respect to commodity prices, the rebound of copper prices stand out," it added.
    Chile's Gross Domestic Product contracted by 0.1 percent in the fourth quarter from the third quarter for annual growth of 2.7 percent, down from 5.0 percent. The unemployment rate rose to 6.45 percent in March from 6.13 percent in February.
    The central bank forecast in March that Chile's GDP would expand between 3.0 and 4.0 percent this year, down from 4.1 percent in 2013. The International Monetary Fund forecasts 3.6 percent growth this year and 4.1 percent in 2015.
    The bank's monthly  survey shows expectations for Chile's GDP to expand by 3.2 percent this year, rising to 4.0 percent in 2015 and 2016.
    While the central bank was expected to maintain its policy rate this month, the monthly survey also shows that it is expected to cut the rate to 3.75 percent next month.

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