UPDATE 2-Chile's economy posts weakest monthly growth in over four years

Tue Aug 5, 2014 12:26pm EDT

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(Adds results of Reuters inflation poll, link to graphic)

By Anthony Esposito

SANTIAGO Aug 5 (Reuters) - Chile's economy grew at its slowest pace in more than four years in June, a below-forecast surprise that likely opens the door to more interest rate cuts.

Economic activity rose 0.8 percent in June from the same month a year ago, despite one extra working day, as manufacturing, wholesale, retail and car sales all fell, the central bank said on Tuesday.

It was the lowest reading since March 2010, when the South American country was dealing with the aftermath of a devastating earthquake and tsunami.

The anemic growth came despite forecasts for a 2.0 percent rise, according to a Reuters survey.

"Even with low expectations, June's Proxy GDP (IMACEC) managed to surprise on the downside ... Although inflation data may provide some hesitation if it comes well above expectations, we believe the data should seal a call for a rate cut to 3.5 percent next week," said Pedro Tuesta, an analyst at 4Cast.

The IMACEC economic activity index encompasses about 90 percent of the economy tallied in gross domestic product data.

In a bid to kick-start the economy, Chile's central bank has reduced the benchmark rate by 125 basis points to 3.75 percent since last October.

However, the central bank's easing cycle has been complicated by inflation above its 2 percent to 4 percent tolerance range. July inflation data is due on Friday, ahead of the bank's next rate decision on Aug. 14.

A Reuters survey of 18 analysts and economists forecast that consumer prices rose 0.2 percent in July, keeping annual inflation above the central bank's target range.

Chile's peso currency fell sharply following the release of the disappointing growth data, slipping 0.93 percent to 576.70 to the U.S. dollar.

In comparison with May, economic activity decreased a seasonally adjusted 0.8 pct. It has gained 2.2 percent during the first half of the year.

Considering a "weakening labor market, with an increase in unemployment and a deterioration of the quality of work, it's possible we'll continue to have weak economic activity data during the rest of the year," said Antonio Moncado, economist at Bci Estudios.

(Additional reporting by Rosalba O'Brien, Froilan Romero and Felipe Iturrieta; Editing by W Simon, Tom Brown and Dan Grebler)

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