Chile central bank unexpectedly cuts rate to boost growth

Reuters

SANTIAGO, Oct 17 (Reuters) - Chile's central bank cut itsinterest rate to 4.75 percent on Thursday in asurprise move to stimulate the Andean country's easing economicgrowth.

The bank cited a consolidation of "slower world growth,lower terms of trade for Chile, less favorable financialconditions" and expectations domestic demand, one the economy'skey drivers, will wane.

Few in the market had expected the bank on Thursday wouldbreak the wait-and-see position it had adopted since a cut toits key rate in January 2012.

"Domestically, economic activity has proceeded at a moderatepace, in line with the scenario in the last Monetary PolicyReport," the bank's post-meeting statement said.

"Final demand has reduced its rate of expansion, althoughnot as sharply as was forecast. Various indicators anticipatethat it will decelerate further," the bank added.

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

Analysts polled by the central bank prior to the policymeeting had forecast the rate would be kept steady at 5.0percent on Thursday and in November, but would be cut by 25basis points in December.

"We think the central bank's decision is consistent with itsinflation mandate, the current levels of the current accountdeficit and the deterioration of domestic demand," BCP/CredicorpCapital said in a note to clients.

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