(Adds peso reaction, background)
SANTIAGO May 8 Inflation in Chile
rose far above market expectations in April, sparking a peso
rebound as traders bet against an interest rate cut later this
Consumer prices rose 0.6 percent in April, the government's
INE statistics agency said on Thursday. That compared to a
Reuters poll forecast for a 0.2 percent rise.
In the 12 months to April, inflation was 4.3 percent,
breaking above the central bank's 2 percent to 4 percent target
for the first time in around two years.
In reaction to the inflation reading, the peso
rallied 1.07 percent against the U.S. dollar as traders scaled
back bets the central bank would cut its benchmark interest rate
at its next monetary policy meeting.
The latest inflation reading hands the central bank a
dilemma when it meets to decide the key interest rate next week.
It has cut rates 100 basis points since October in a bid to
stimulate Chile's flagging economy, but further cuts could risk
A depreciation in the Chilean peso has made fuel and other
imported goods more expensive, driving up prices. Food, drinks,
health care, housing and basic services costs all rose in the
month, said INE.
The central bank has flagged that it expected inflation to
test the high end of its tolerance range for some months, but
that it should cool down as economic deceleration outweighs the
effect of the weaker peso.
But concerns over faster inflation stayed its hand at last
month's monetary policy meeting. Minutes showed that the board
decided to pause in its easing cycle, holding the benchmark
rate at 4.0 percent, as it weighed the persistence of recent
A central bank poll released last month showed traders
expected a 25 basis point cut to 3.75 percent.
Core inflation in April was 0.8 percent.
For a link to the INE report see: here
(Reporting by Santiago newsroom, Writing by Rosalba O'Brien,
Editing by W Simon)