* Chile May CPI flat; market expected 0.2 percent increase * Central bank seen holding rates at 5 percent in coming months * Chile bracing for fallout from euro zone debt woes By Antonio De la Jara and Anthony Esposito SANTIAGO, June 8 (Reuters) - Chile's consumer price index did not vary in May, the government statistics agency INE said on Friday, slowing its pace from April as lower food and transport prices offset higher electricity costs and reinforcing expectations interest rates will stay on hold. Analysts polled by Reuters had forecast a median 0.2 percent increase in the index, amid expectations the central bank will continue to keep interest rates on hold at 5.0 percent. Prices rose 0.1 percent in April, the INE said last month. Chilean Central Bank President Rodrigo Vergara told Reuters this week short-term inflation risks had eased but medium-term risks remained, and stressed the bank was maintaining its neutral monetary policy bias. He also said external risks currently outweigh domestic ones. "We expect the (bank) to remain on hold at the broadly neutral 5.0 percent in the near term with a view to introduce a dovish/easing bias if the global macro backdrop continues to deteriorate, as Chile's small open commodity-dependent economy tends to show a high Beta to the global economic and commodity price cycles," said Alberto Ramos, economist with Goldman Sachs in New York. The central bank is no longer seen raising its key interest rate by year-end, and the rate is now seen steady at its current level in December and in mid-2013, the bank's latest fortnightly poll of traders said. The previous fortnightly poll had forecast the rate would rise to 5.25 percent in 6 months. Core CPI rose 0.3 percent in May, and inflation in the 12 months to May slowed to 3.1 percent, almost bang on the bank's policy horizon target and well below the 4.0 percent ceiling of the central bank's tolerance range. "This is good news which makes it easier on the pockets of all Chileans," Finance Minister Felipe Larrain told reporters, citing lower food and transport costs. Chile's peso was unmoved by the inflation data, moving lower instead with weaker global markets and a sharp fall in prices of Chile's main export, copper. However yields on central bank bonds rose following the data, traders said. Chile, the world's No.1 copper producer, has been bracing for a slowdown in demand globally and especially from China, the world's leading consumer of the metal, and is preparing for fallout from the euro zone crisis. The economy is already feeling the impact of global financial turbulence via lower international copper prices, but it should still grow by 4.0 percent or more this year, President Sebastian Pinera told Reuters on Friday. Chile's economic growth eased in April from March, the central bank showed on Tuesday, reinforcing expectations that it will keep interest rates on hold in coming months. The bank held its key rate at 5.0 percent in May for a fourth consecutive month, buying time to watch events at home and abroad. Chile posted its first monthly trade deficit in nearly a year in May, the central bank said on Thursday, in a sign fallout from Europe's escalating crisis and moderating growth in top trade partner China could be crimping its small, export-dependent economy.