* Central bank says peso has further appreciated in multilateral terms * Central bank, gov't met earlier Thursday to discuss peso strength * Currency at same level that triggered intervention in 2011 By Anthony Esposito SANTIAGO, April 11 Chile's central bank kept its key rate steady at 5.0 percent on Thursday, as expected, and underscored that the peso currency has continued appreciating across the board and that domestic demand remains dynamic. It is the second meeting in a row the bank has referred to the peso's appreciation in "multilateral" terms in its post-meeting communique. The central bank also mentioned that commodities prices, especially for copper - Chile's top export - have receded in recent weeks. "The fact that the central bank mentioned copper prices are falling yet the peso keeps appreciating reflects that the monetary authority notices an uncoupling of the peso with its fundamentals," said Alejandro Puente, economist at BBVA Chile. The peso typically moves in line with copper prices, as higher prices mean more dollars entering the local market due to sales of the red metal. The inverse is true of lower prices. In a public display of unease with the matter, Finance Minister Felipe Larrain met with Central Bank President Rodrigo Vergara prior to the monetary policy meeting to discuss the peso's strength. The local currency climbed to 465.50 per U.S. dollar on Tuesday - the same level that had triggered a central bank currency intervention in early 2011. "We have a prior meeting with the president of the central bank, where we will discuss in depth the issue of the peso and other matters," Larrain told reporters earlier on Thursday. The central bank has kept its benchmark lending rate steady at 5.0 percent since a surprise cut in January 2012, as buoyant growth, low inflation and a strong peso - as well as persistent economic threats from abroad - keep its hands tied. "The labor market is still tight and domestic demand remains dynamic. Credit conditions are somewhat more restrictive," the central bank said in its post-meeting statement. Analysts surveyed in the central bank's latest poll said they saw the benchmark rate holding steady at least through December before being hiked to 5.25 percent within 11 months. The bank kept its monetary policy bias broadly neutral, which in standard monetary policy parlance means it neither spurs nor curbs economic growth. The peso has been buoyed by Chile's robust economy, an attractive rate differential and healthy prices for copper. So-called quantitative easing measures adopted in major economies have also helped fuel the peso's appreciation. The peso was one of the strongest performers against the U.S. dollar among 152 currencies tracked by Reuters after appreciating 8.48 percent last year and has accumulated an additional gain of around 2 percent in 2013. Though the peso "is likely to remain under strengthening pressure from capital inflows charged by global liquidity and attracted by solid fundamentals and high interest rates," there is limited room for additional appreciation, as an exchange rate closer to 460 per dollar increases the likelihood of intervention, said RBS economist Felipe Hernandez. Chile's central bank deployed a dollar-purchasing program in 2011, increasing its foreign reserves by $12 billion, to curb peso strength after it appreciated to 465.50 per dollar, then its highest level in over 2-1/2 years. In recent weeks, the bank has said a currency market intervention is one of the tools at its disposal, but it has also highlighted the costs associated with such a move. SURGING DEMAND The bank is also concerned with reining in robust domestic demand, which has been growing faster than gross domestic product, helping to fuel a widening current account deficit. Analysts have said the bank could raise its key rate to rein in buoyant demand sooner than forecast, but it may have to incur a currency intervention before a rate hike to avoid further stoking the strong peso. Over the weekend, bank board member Enrique Marshall said the bank will act if the local economy maintains dynamism "above what is reasonable," and interest rates are the best instrument at the entity's disposal. Sturdy domestic demand, an economy near full employment and solid levels of investment have protected the world's No. 1 copper producer from a sharp slowdown on the back of global economic woes, but many analysts are now worried about overheating. Those fears have not yet materialized in the form of inflationary pressures. Chile's consumer price index posted a 0.4 percent rise in March, its fastest pace since October, but the 12-month figure of 1.5 percent remained well below the central bank's tolerance range of 2 percent to 4 percent. "Headline and core inflation measures are around 1 percent and 2 percent year-on-year, while inflationary expectations in the policy horizon remain around the target," the post-meeting statement said. Elsewhere in the region, inflation in Brazil pierced the government's target ceiling in March for the first time in over a year. However, the rise was slightly less than expected, fueling bets the country's central bank could wait until May to start hiking interest rates. In Mexico, the annual inflation rate also climbed above the central bank's target ceiling in March, crimping policymakers' ability to lower borrowing costs as the peso currency soared to 20-month highs. Mexico's central bank cut its key rate to an all-time low of 4 percent in early March in what was seen as a bid to tamp down its currency, but the peso has kept appreciating, and is up about 6.8 percent so far this year.