UPDATE 1-Chile central bank sees slower than expected economic recovery

Tue Aug 19, 2014 11:36am EDT

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SANTIAGO Aug 19 (Reuters) - Chile's economic recovery will be slower than previously expected, central bank chief Rodrigo Vergara said on Tuesday, adding that lower energy costs were needed to nuture growth.

"We are projecting a slower economic recovery than we forecast a while ago, with a third quarter that will continue showing a significant degree of weakness," Vergara said in a speech at a local university.

Estimates for 2014 growth in the top copper exporter have been cut repeatedly as a slowdown that began last year has gathered pace.

The bank forecast in June the economy would grow between 2.5 percent and 3.5 percent this year, though recent data has most economists thinking a range between 2.0 and 2.5 percent is more likely. In 2013, growth was 4.1 percent.

The bank has cut the benchmark interest rate 150 basis points since October in an attempt to reverse the slowdown.

An expansionist bias was being maintained by the bank, said Vergara, but he added that loose monetary policy alone would not be enough to turn around the economy.

"Monetary policy is a powerful tool to mitigate the effects of the economic cycle. However, greater medium-term growth requires structural policies, for example reduced energy costs," he said.

Chile is facing an impending energy squeeze as it seeks to cover the needs of its population and power-hungry mines in its arid north, with little in the way of its own fossil fuels.

Rising energy prices are a key factor behind Chile's relatively high copper production costs, at a time of sliding market prices for the metal. (Reporting by Fabian Cambero, Writing by Rosalba O'Brien; Editing by Chizu Nomiyama and Tom Brown)

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