(Adds bank's comments, background details)
SANTIAGO, March 20 Chile's central bank will
likely downwardly revise its economic growth projections for
2014 as activity and domestic demand have slowed more than
anticipated, bank president Rodrigo Vergara said in prepared
remarks on Thursday.
The bank had forecast in December in its last quarterly
Monetary Policy Report (IPoM) 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.
The next IPoM will be published at the end of March.
However, during the year, growth should accelerate, Vergara
Faced with stalling 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.
Vergara reiterated that the bank's board "will consider the
possibility of making additional cuts to the policy rate in line
with the evolution of domestic and external macroeconomic
conditions and its implications on the inflationary outlook."
The silver lining to reduced domestic activity has been a
softer current account deficit, Vergara pointed out.
Chile's current account deficit reached $9.49 billion in
2013, equivalent to 3.4 percent of gross domestic product.
Some market participants were concerned about Chile's
relatively large current account deficit, which makes it
vulnerable to reduced bond buying by the U.S. Federal Reserve,
declining commodities prices and slowing economic growth.
But Chile's sovereign wealth funds and the central bank's
international foreign reserves give it an "important liquidity
buffer", said Vergara.
The country's two rainy day piggy banks, the Reserve Pension
Fund and Social and Economic Stabilization Fund, held nearly $23
billion at the end of January, while the central bank's foreign
exchange reserves amounted to over $40 billion.
(Reporting by Felipe Iturrieta; Writing by Anthony Esposito;
Editing by Chizu Nomiyama and Meredith Mazzilli)