* Bank juggling firm local growth, external threats
* Market sees rate held at 5 pct in near future
* Chile slowdown so far softer than expected
* Bank cites strong Chilean peso in statement
By Anthony Esposito
SANTIAGO, Sept 13 Chile's central bank held its
key interest rate steady at 5.0 percent as expected for an
eighth straight month on Thursday as healthy economic growth and
demand at home counterbalance an unwelcome global backdrop.
Chile, the world's largest copper producer, has been
preparing for a slowdown in global demand, especially from
China, its main trade partner and top metals consumer, but its
small, export-dependent economy has fared better than expected.
"Domestically, output and demand indicators have evolved
around trend," the labor market remains tight, and annual
inflation, as well as core inflation, are below the central
bank's 3.0 percent policy horizon target, the bank's
post-meeting communique said.
"Global financial conditions have improved and the financial
tensions in the euro zone have moderated after the announcements
of the European Central Bank. However, there is still
uncertainty about the region's performance and a resurgence of
tensions in coming months cannot be ruled out," the bank added.
The monetary authority also highlighted that the Chilean
peso "has strengthened," but did not elaborate. The
local currency has appreciated around 10 percent this year
against the U.S. dollar, sparking market talk the bank could
launch another foreign exchange intervention to stem further
But bank president Rodrigo Vergara said last week that
existing "worry" over the strong Chilean peso did not yet
The peso closed at 472.70 per dollar on Thursday, a fresh
"We weren't anticipating any surprises (on rates).
Considering the strength the Chilean economy is still
exhibiting, the recovery of inflation and external uncertainty,
a change in the neutral monetary policy stance is highly
unlikely. For now we don't see any changes until 2014," said
Alejandro Puente, chief economist at BBVA Chile in Santiago.
The central bank, in its much anticipated quarterly Monetary
Policy Report last week, said the key rate is
within a range considered neutral, suggesting it would maintain
a wait-and-see stance.
A neutral interest rate, in theory, should neither spur nor
curb economic growth - all other factors being equal.
Chilean economic activity grew 5.5 percent on the year in
the second quarter, boosted by domestic demand,
which jumped 7.1 percent.
Inflationary pressures, meanwhile, have eased, with
inflation in the 12 months to August at 2.6 percent, just below
the central bank's 3 percent policy target.
Two central bank polls this week showed traders and analysts
expect the rate to be at 5.0 percent in coming months.
Traders polled by the bank in August predicted the rate
would be at 4.75 percent within six months, but have since nixed
bets on a cut as domestic economic data remains solid.
Lower export revenue, which prompted Chile in August to post
its largest trade gap since the height of the global financial
crisis, has to date been one of the most salient indications of
decelerating global demand.
Even so, finance minister Felipe Larrain said on Tuesday
Chile's government isn't "too concerned" about any effect on the
current account and expectations for a deceleration of the local
Elsewhere in the region, Brazil's central bank signaled it
was wrapping up a year-long policy easing cycle, but left the
door open for a final rate cut as it sees inflation remaining
under control, according to minutes released last week from its
most recent monetary policy meeting.
Colombia's central bank lowered its benchmark interest rate
for the second consecutive month in August in a widely expected
move to bolster the economy as the global slowdown crimps
overseas sales and weak sentiment slows consumer spending.
Peru's central bank held its benchmark interest rate steady
at 4.25 percent for the 16th straight month last week, betting
inflation would cool to within its target range by the end of