Chile's central bank seen holding interest rate later Thursday
By Anthony Esposito SANTIAGO, Feb 14 (Reuters) - Chile's central bank is expected to keep its benchmark lending rate on hold again on Thursday as it weighs low inflation and a strong currency against the impact of brisk economic growth and firm domestic demand. The No.1 global copper producer's small, export-dependent economy has largely weathered the effects of slowing demand in top trade partner China, a sluggish recovery in the United States, and the euro zone's unrelenting crisis. Buoyant domestic demand, the lowest unemployment rate in six years and sizeable investments fueled 5.6 percent growth last year. Inflation, a mainstay of central bank preoccupation, has remained well below the bank's target range of 2.0 percent to 4.0 percent. It was 1.6 percent in the 12 months to January. That has prompted the bank to keep the key rate steady at 5.0 percent, a level considered neutral for Chile's economy, since a surprise cut in January 2012. In standard monetary policy parlance, a neutral interest rate neither spurs or curbs economic growth, all other factors being equal. Analysts and traders surveyed in two separate central bank polls said they saw the key rate remaining at its current level in coming months, with many seeing no change throughout the year. "They're going to stay on hold for a good three to six months, perhaps the rest of the year. It depends on how local economic indicators evolve," said Michael Henderson, an economist with Capital Economics in London. By contrast in the region, Brazil's inflation accelerated to the fastest rate in nearly eight years in January, raising bets of an interest rate hike this year that could complicate the government's drive to reignite a near-stagnant economy. An official at Peru's central bank said earlier this month that if annual inflation cools to 2 percent as expected in the coming months, "the conditions would be created" for lowering the interest rate, which the bank has held steady for 21 straight months. Mexico's central bank chief Agustin Carstens warned on Wednesday that lower interest rates are not a "done deal" for Latin America's second-largest economy despite his forecasts of tame inflation over the next two years. When Chile's central bank releases its post-meeting statement at 6 p.m. local time (2100 GMT), market participants will scour it for any indication of concern about the local peso's strength. Chile's peso, boosted by robust economic growth and healthy prices for top export copper, was one of the strongest foreign currency performers against the U.S. dollar among 152 currencies tracked by Reuters last year. It has firmed over 10 percent versus the greenback since the start of 2012. Latin American authorities have expressed worry that stimulus measures in the developed world will trigger more capital flows into the commodities-dependent region, further strengthening local currencies. Chilean Finance Minister Felipe Larrain said last month that the government would support any intervention by the country's independent central bank to weaken the strong peso. The central bank deployed a dollar-purchasing program in 2011 to curb peso strength after it appreciated to its highest level in more than 2-1/2 years at 465.50 per dollar. It currently stands at around 470.50.
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