UPDATE 1-Chile cbank again weighed rate cut in June as growth slows

Fri Jun 28, 2013 9:33am EDT

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SANTIAGO, June 28 (Reuters) - Chile's central bank considered cutting its key interest rate in June as the so-far robust economy slows faster than expected and inflation remains low, the minutes of the monetary policy meeting showed on Friday.

"As to the monetary policy decision, the option of lowering the rate could be warranted by expectations of a more intense slowdown in activity and domestic expenditure over the coming quarters, and by a delay in the expected normalization of the inflation rate towards the 3 percent target," the minutes said.

But all members of the bank's governing board voted on June 13 to keep the rate steady at 5 percent, where it has been since a surprise cut in January 2012. The bank also weighed a cut in May.

Regarding the decision to keep rates on hold again, "one board member noted that information needed to assess the speed of growth adjustment was still ambiguous, and therefore it was necessary that policy decision making be cautious," the minutes showed.

Chile's May inflation rate was zero percent, sending the annual rate down to at least a two-year low of 0.9 percent, bolstering bets that the bank will cut rates in coming months to stimulate flagging economic growth.

Soft inflation, below the central bank's 2 percent to 4 percent range, along with slowing growth and domestic demand have helped fuel bets of an interest rate cut in coming months.

"All board members remarked on the low inflation measures, although emphasizing the expected convergence to the target during subsequent months. They also highlighted that inflation expectations over a two-year term remained around 3 percent," the bank said.

Chilean traders see the bank cutting its benchmark interest rate by a quarter-percentage point to 4.75 percent in three months, as they had forecast earlier this month, a central bank poll released on Wednesday showed.

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