* Chile May CPI flat; market expected 0.2 percent increase
* Central bank seen holding rates at 5 percent in coming
* Chile bracing for fallout from euro zone debt woes
By Antonio De la Jara and Anthony Esposito
SANTIAGO, June 8 Chile's consumer price index
did not vary in May, the government statistics agency INE said
on Friday, slowing its pace from April as lower food and
transport prices offset higher electricity costs and reinforcing
expectations interest rates will stay on hold.
Analysts polled by Reuters had forecast a median 0.2 percent
increase in the index, amid expectations the central bank will
continue to keep interest rates on hold at 5.0 percent. Prices
rose 0.1 percent in April, the INE said last month.
Chilean Central Bank President Rodrigo Vergara told Reuters
this week short-term inflation risks had eased but medium-term
risks remained, and stressed the bank was maintaining its
neutral monetary policy bias. He also said external risks
currently outweigh domestic ones.
"We expect the (bank) to remain on hold at the broadly
neutral 5.0 percent in the near term with a view to introduce a
dovish/easing bias if the global macro backdrop continues to
deteriorate, as Chile's small open commodity-dependent economy
tends to show a high Beta to the global economic and commodity
price cycles," said Alberto Ramos, economist with Goldman Sachs
in New York.
The central bank is no longer seen raising its key interest
rate by year-end, and the rate is now seen steady
at its current level in December and in mid-2013, the bank's
latest fortnightly poll of traders said.
The previous fortnightly poll had forecast the rate would
rise to 5.25 percent in 6 months.
Core CPI rose 0.3 percent in May, and inflation in the 12
months to May slowed to 3.1 percent, almost bang on the bank's
policy horizon target and well below the 4.0 percent ceiling of
the central bank's tolerance range.
"This is good news which makes it easier on the pockets of
all Chileans," Finance Minister Felipe Larrain told reporters,
citing lower food and transport costs.
Chile's peso was unmoved by the inflation data,
moving lower instead with weaker global markets and a sharp fall
in prices of Chile's main export, copper. However yields on
central bank bonds rose following the data, traders said.
Chile, the world's No.1 copper producer, has been bracing
for a slowdown in demand globally and especially from China, the
world's leading consumer of the metal, and is preparing for
fallout from the euro zone crisis.
The economy is already feeling the impact of global
financial turbulence via lower international copper prices, but
it should still grow by 4.0 percent or more this year, President
Sebastian Pinera told Reuters on Friday.
Chile's economic growth eased in April from March, the
central bank showed on Tuesday, reinforcing expectations that it
will keep interest rates on hold in coming months.
The bank held its key rate at 5.0 percent in May for a
fourth consecutive month, buying time to watch events at home
Chile posted its first monthly trade deficit in nearly a
year in May, the central bank said on Thursday, in a sign
fallout from Europe's escalating crisis and moderating growth in
top trade partner China could be crimping its small,