UPDATE 2-Chile October inflation slows, boosts bets for rate cuts

Fri Nov 8, 2013 11:27am EST

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SANTIAGO, Nov 8 (Reuters) - Chile's inflation rate slowed
sharply in October, falling to 0.1 percent, the government said
on Friday, bolstering market bets that an interest rate cut is
on the horizon to spur economic growth. 
    The soft inflation reading, as measured by the consumer
price index, followed a 0.5 percent advance in
September. Higher prices for food and non-alcoholic beverages
were partly offset by lower prices for transport. The September
result matched a Reuters forecast, and was the lowest monthly
reading since May. 
    "We have inflation that is perfectly under control, on the
lower end of the central bank's range," Finance Undersecretary
Julio Dittborn said during a presentation at an event organized
by Reuters.
    Inflation in the 12 months to October was 1.5 percent, well
below the central bank's 2 to 4 percent target range, the INE
national statistics agency said. The reading in the 12 months to
September was 2.0 percent.
    The inflation reading, combined with Chile's easing economic
growth and cooling domestic demand, supports forecasts for
another interest rate reduction, following the bank's surprise
decision to cut the key rate by 25 basis points to 4.75 percent
on Oct. 17.
    Considering "disappointing leading indicators of activity, a
better-than-expected trade balance, and misaligned inflation
dynamics, a source of growing concern among (central bank)
directors, ... we see little reason for the directors to not cut
the policy rate again in November," Tiago Severo, economist at
Goldman Sachs, said.
    But not all analysts are convinced the central bank will
take action at its next rate-setting meeting, on Nov. 19, which
takes place two days after a general election.
    "The conditions that prompted the interest rate cut in
October haven't deepened, and as such the central bank will hold
the key rate steady at 4.75 percent in November," Matias Madrid,
chief economist at Banco Penta, said.
    "They will then probably adjust their bias and cut by 25
basis points in December," he added.
    Traders polled by the bank last month said they expect the
interest rate to be cut to 4.50 percent by February
2014. 
    Core inflation in October was 0.3 percent in the month.
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