UPDATE 1-Chile central bank keeps rates flat, flags strong peso

* Rate cuts seen delayed as CPI eases, local growth firm
* Central bank highlights stronger peso, market worried
* World No. 1 copper producer's economy slowing on global
woes

By Alexandra Ulmer and Moises Avila
SANTIAGO, Aug 16 (Reuters) - Chile's central bank held its
key interest rate steady at 5.0 percent for a seventh straight
month on Thursday, saying energy and food prices could pick up
in coming months and highlighting the peso's strength in what
was viewed as a signal to the market.
Chile's small, export-dependent economy is bracing for the
fallout from the euro zone's sluggish economic growth and a
cooling in top trade partner China, but many in the market have
delayed or canceled bets on a rate cut due to solid local growth
and easing inflation.
Analysts polled by the central bank last week expect the
benchmark rate to be at 5 percent in 11, 17 and 23
months from now, marking a turnaround from previous forecasts of
a looming rate cut.
The bank's earlier, separate fortnightly poll of traders
shows they expect the bank to cut the rate to a median 4.75
percent within six months.
Chile's peso firmed to near 11-month highs earlier
this month before easing off, and analysts say the currency has
room to appreciate further before any concrete intervention
measures. However, they have been scouring for verbal signals.
"It's the first time in a few months that the bank mentions
the peso's appreciation, and that shows it's worried," said
Carlos Martinez, head of foreign exchange trading at Vantrust
Capital in Santiago. "This is a kind of message to the market."
Chilean consumer prices were unchanged in July and annual
inflation in the 12 months to July was 2.5 percent, approaching
the floor of the central bank's 2 percent to 4 percent tolerance
range.
"The peso has appreciated ... In the last few months, the
most volatile components of the basket (i.e., energy and
foodstuffs) showed a negative incidence on the CPI, which could
diminish or revert going forward, given their recent performance
in international markets," the bank said in its post-meeting
statement.
Chile, the world's top copper producer, "has room" to
maneuver in both monetary and fiscal policy as the economy
slows, Finance Minister Felipe Larrain said earlier this month.

Chile's peso, which has gained more than 7 percent this
year, is likely to keep appreciating on the back of strong
economic growth, barring central bank intervention, traders and
analysts say.
The central bank intervened last year when the peso rose to
465.50 per dollar and in 2008 when the currency rose to 430. It
closed at 482.80 on Thursday, before the central bank rate
decision.
However, the central bank focuses on the real exchange rate,
which shows how competitive the peso is against a basket of
currencies, and analysts believe the peso would need to firm to
around 460 per dollar before the bank would intervene this time
around.
"(The bank) is also looking at inflation with preoccupation.
If inflation rises, the bank won't be able to lower rates and
that will make the peso strengthen a lot," added Vantrust's
Martinez. "That's why it will act with much caution and we don't
think it's going to move the rate in the coming months."
Economic activity and domestic demand growth continue to
gradually recede and Chile slipped into a trade deficit in July
as copper export revenues fell.
"We expect a greater slowdown in the second part of the
year," central bank president Rodrigo Vergara said earlier this
month. "We have two forces. On the one hand: a strong, dynamic
domestic economy and a pretty tight labor market; but on the
other we have a risky external scenario."
"While the economic scenario remains between two forces,
monetary policy should be very prudent. Acting hastily will only
reduce the capacity to act."
Some central banks in Latin America have started to cut
rates to spur their economies.
Brazil's central bank has slashed interest rates in eight
straight meetings to a record-low 8 percent in an effort to
stimulate the country's faltering economy.
Colombia's central bank unexpectedly lowered its benchmark
interest rate last month for the first time in over two years in
a move to shield Latin America's No. 4 economy from global
economic weakness.
But Peru's central bank held its benchmark interest rate
steady at 4.25 percent for the 15th straight month
last week as expected.