March 1, 2013 / 12:41 PM / in 4 years

UPDATE 1-Chile central bank only considered rate hold in Feb-minutes

3 Min Read

* Key interest rate has remained on hold since Jan. 2012

* All five board members voted to hold in Feb.

* Cenbank says rates still at levels considered neutral

SANTIAGO, March 1 (Reuters) - Chile's central bank only considered keeping its key lending rate on hold last month as inflation remained in check and economic growth continued to boom, the minutes of February's monetary policy meeting showed on Friday.

With Chile's economy running near full employment, domestic demand booming and firm investments fueling economic growth, in stark contrast to looming global economic risks, the central bank has kept its key interest rate on hold since a surprise cut in January 2012.

The minutes showed that all five members of the bank's governing board voted to keep the rate steady at 5 percent on Feb. 14.

Holding the key rate steady was justified "by the fact that the current level of the monetary policy interest rate was within a range of neutral values," the minutes said.

In standard monetary policy parlance, a neutral interest rate neither spurs nor curbs economic growth, all other factors being equal.

"Keeping the monetary policy interest rate at its current level was consistent with inflation converging to the target within the projection horizon," the minutes added.

Inflation has remained well below the bank's target range of 2.0 percent to 4.0 percent, coming in at 1.6 percent in the 12 months to January. Consumer prices are forecast to hover around the mid-point of the target in 12 and 24 months, according to traders and analysts polled by the bank.

The central bank's minutes underscored the labor market and domestic markets generally remained tight and output continued to grow at a pace of 5 percent to 6 percent, driven by the sustained dynamism of domestic demand, especially investment.

"These demand-side pressures, however, were reflected mainly in higher imports, with less severe effects on the use of internal resources and inflation," the minutes said.

Bank board members stressed the dynamism exhibited by domestic output and demand, but said "the recent pattern of growth driven by domestic demand had resulted in a widening of the current account deficit, a development that, should it continue, could be a factor of external vulnerability."

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