Chile's central bank cut its policy rate by 25 basis points to 3.75 percent, as expected, and said its board "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 for the inflationary outlook."
The Central Bank of Chile, which has now cut its rate by 125 basis points since October 2013, said the pace and expansion of output and demand in Chile had slowed further, with a drop in investment compounded by a slowdown in private consumption.
Nevertheless, the unemployment rate remains low and the annual rate of growth in wages had accelerated despite signs of declining dynamism in the labor market, the central bank said.
Chile's inflation rate eased to 4.3 percent in June from 4.7 percent in May and the central bank said the most likely scenario continues to be that inflation will remain above the upper bound of the central bank's tolerance range for some months before returning to the target.
The central bank targets inflation at a midpoint of 3.0 percent within a one percentage point tolerance range plus or minus. In March the central bank forecast that inflation would end this year around 3.0 percent, with a temporary rise to between 3.5 and 4.0 percent, partly due to the effect of a depreciation of the peso currency, up from average 2013 inflation of 1.8 percent.
The central bank said developed economies, particularly the United States, were continuing to recover while growth forecast for emerging economies had deteriorated.
It also noted that copper prices had risen while agricultural prices had declined.
Chile's Gross Domestic Product expanded by 0.7 percent in the first quarter of the year from the previous quarter for annual growth of 2.6 percent, down from 2.7 percent in the fourth quarter of last year.
Last month Rodrigo Vergara, governor of the central bank, said the central bank's expansive monetary policy would continue and further rate cut were probable. On Monday the central bank's quarterly poll on credit showed that a growing number of banks reported more restrictive conditions for corporate loans in the second quarter.