Chile central bank seen keeping key rate pat again on Thursday

Reuters

SANTIAGO, Oct 17 (Reuters) - Chile's central bank was poisedto keep its key interest rate on hold again at 5 percent onThursday, as a tight labor market and buoyant consumer spendingwere seen deferring a cut to stimulate the Andean country'sslowing economy.

While copper-dependent Chile's robust pace of growth ismoderately easing on the back of cooling investment and exports,expectations of an imminent rate cut have been pushed back after recent upbeat data.

Economic activity grew a robust 4.1 percent in Augustcompared with a year earlier, buoyed by the dynamic retail andkey mining sector, while unemployment hovered near multi-yearlows.

Few in the market expected the bank on Thursday would breakthe wait-and-see position it has adopted since a cut to its keyrate in January 2012.

"The central bank is now almost at the edge, ready to lowerthe reference rate. Nevertheless, we continue to believe thatdirectors would need to see a triggering factor ... to break theinertia and finally cut the policy rate," Goldman Sachs said ina note to clients.

"In the absence of these sorts of catalysts, and given thestill solid real activity data, directors are more likely tovalidate the market's very short-term expectations for a stablepolicy rate."

Analysts polled by the central bank forecasted the rate willbe kept steady on Thursday and in November, but will be cut by25 basis points in December.

Traders also polled by the bank expected it to go throughwith its widely expected 25 basis point cut within three monthsto stimulate growth.

The central bank sees Chile's economy expanding between 4and 4.5 percent this year, down from 5.6 percent in 2012.

Chile's current wait-and-see stance contrasts with moredynamic monetary policy in some other Latin American countries.

Regional powerhouse Brazil's central bank raised itsbenchmark Selic interest rate for the fifth straight time lastweek, keeping the pace of rate hikes steady and giving no signsit was ready to end monetary tightening to battle highinflation.

Farther north in Mexico, the central bank has cut itsbenchmark interest rate twice this year to a historic low of3.75 percent in a bid to boost sagging growth in Latin America'sNo.2 economy.

Chile's central bank will announce its decision on rates at2100 GMT on Thursday.

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