(Adds comments from central bank, analyst, background)
SANTIAGO Aug 14 Chile's central bank cut its
benchmark interest rate 25 basis points to 3.50 percent on
Thursday despite stubbornly high inflation and left the door
open for additional reductions as it looks to boost a quickly
The bank is in an easing cycle and has already reduced the
rate from 5.0 percent since last October.
"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," the central bank
said in its post-meeting statement.
Although annual inflation stayed above the central bank's 2
to 4 percent target range for the fourth straight month in July,
analysts had predicted that concerns about the economy growing
at its slowest pace in more than four years in June would lead
to additional rate cuts.
"Local economic indicators show that the pace of expansion
of output and demand has slowed more sharply than expected. The
drop in investment has been compounded by a more marked slowdown
in private consumption," the bank said.
Moreover, market participants widely expect annual inflation
to return to the midpoint of the bank's tolerance range in the
medium term, giving monetary policymakers room for action.
"With inflation expectations anchored at 3 percent, (the
rate cut) seems like the right decision, in a context of
deteriorating activity, which has impacted labor market
dynamism," said Antonio Moncado, economist at Bci Estudios.
The central bank reiterated that in the most likely
scenario, inflation will stay above the upper limits of its
tolerance range for some months and then return to the target, a
situation it said it will monitor "with special attention."
(Reporting by Santiago newsroom; Writing by Anthony Esposito;
Editing by G Crosse and Dan Grebler)