UPDATE 1-Chile March rate cut a unanimous decision - central bank minutes

Fri Mar 28, 2014 8:30am EDT

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SANTIAGO, March 28 (Reuters) - The Chilean central bank's decision to cut the benchmark interest rate earlier this month was a unanimous decision, minutes of the meeting showed on Friday.

But board members also weighed standing pat on the rate , the minutes showed.

The bank lowered the rate to 4.00 percent from 4.25 percent on March 13 and suggested more reductions could be in the pipeline.

Faced with easing growth and cooling domestic demand, especially in investment, the bank has cut the key interest rate by 100 basis points to 4.0 percent since October in an attempt to stimulate the economy.

"Keeping the monetary policy rate unchanged to wait for new evidence had the risk of arriving too late to prevent an undesired deceleration," the minutes said.

The bank had forecast in its last quarterly Monetary Policy Report (IPoM) in December that Chile's economy would expand between 3.75 and 4.75 percent in 2014.

Since then data has shown the economy in the fourth quarter grew at its weakest pace since early 2010, when a massive earthquake devastated the world's top copper producer. Full-year 2013 growth was 4.1 percent, the lowest since Chile's economy fell into a recession in 2009.

One of the bank's board members said that with the new cut, the key rate "was on a reasonable level given the prevailing conditions and facilitated decision making" because it eased pressure and allowed the proper tempering of policy actions.

Bank board members expressed some concern with continuing to cut the key rate, saying it could drag the peso currency lower and thus fuel inflationary pressures.

"Lowering it could trigger new depreciations that might affect inflation expectations over the relevant monetary policy horizon," the minutes said.

A recent depreciation of the peso has spurred an uptick in the cost of imported goods, including cars, fuel, and food, bringing inflation in the 12 months to February to 3.2 percent. That was the first time inflation broke through the bank's 3 percent mid-point target since May 2012.

In 2014, the peso has depreciated 4.64 percent versus the U.S. dollar, following a 9.01 percent drop last year. (Reporting by Santiago newsroom; Writing by Anthony Esposito; Editing by Chizu Nomiyama)

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