Chile central bank unexpectedly cuts rate to boost growth

October 17, 2013


SANTIAGO, Oct 17 (Reuters) - Chile's central bank cut its interest rate to 4.75 percent on Thursday in a surprise move to stimulate the Andean country's easing economic growth.

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

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

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

"Final demand has reduced its rate of expansion, although not as sharply as was forecast. Various indicators anticipate that it will decelerate further," the bank added.

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

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

"We think the central bank's decision is consistent with its inflation mandate, the current levels of the current account deficit and the deterioration of domestic demand," BCP/Credicorp Capital said in a note to clients.