(Adds detail from statement, background, economist comment)
SANTIAGO, July 15 Chile's central bank cut its
benchmark interest rate on Tuesday for the first time since
March as worries about a slowing economy outweighed concerns
over above-target inflation.
The bank lowered the rate 25 basis points to
3.75 percent, citing weakening output expansion and demand, with
a slowdown in private consumption compounding a drop in
It also continued its loosening bias.
"The board will consider the possibility of making
additional cuts to the monetary policy rate in line with the
evolution of domestic and external macroeconomic conditions and
its implications on the inflationary outlook," it said.
The bank began its easing cycle in October, reducing rates
from 5.0 percent to 4.0 percent by March. Fears of fanning
inflation had since stayed its hand.
However, the board was unusually divided over its decision
in June, minutes of that meeting showed. The market had been
split as to whether Tuesday's meeting would see a hold or cut.
On the one hand, the economy of the top copper exporter has
cooled quicker than predicted, as key mining investment has
dried up and previously strong domestic demand has weakened. On
Monday the government reduced its growth forecast for 2014 to
3.2 percent, down from 4.1 percent in 2013.
"We think the economy's recent evolution indicates the
necessity of starting a bigger stimulus cycle, of between 75 and
100 additional basis points," said Ruben Catalan, senior
economist with Bci Estudios.
On the other hand, a weakening of the peso has spurred
inflation to an annual 4.3 percent, above the bank's 2 to 4
percent tolerance range, although the June reading was lower
Worries over inflation would likely make the bank pause in
the short term, said Catalan.
(Reporting by Santiago newsroom, Writing by Rosalba O'Brien;
Editing by Diane Craft and Andrew Hay)