January 17, 2013 / 10:07 PM / 5 years ago

UPDATE 1-Chile cenbank holds rate as expected, peso comment seen tepid

* Rate held steady at 5.0 pct since January 2012
    * Cenbank say peso has 'slightly' appreciated over last
    * Rates seen remaining on hold in the near term

    By Anthony Esposito
    SANTIAGO, Jan 17 (Reuters) - Chile's central bank kept its
benchmark interest rate steady at 5.0 percent on Thursday - as
expected - for the 12th consecutive session as buoyant domestic
growth counters an uncertain outlook for global demand.
    The bank underscored the peso had appreciated
"slightly" versus the U.S. dollar over the last month, but
didn't use stronger language that could indicate it was mulling
actions to stem the local currency's strength.
   "There's no intention of hiking the rate, due to capital
flows and the peso's strength. While there is a mention that the
Chilean currency has appreciated, you don't see an imminent wish
to intervene," said Matias Madrid, economist with Banco Penta in
    The peso, which last year firmed 8.48 percent and ranked
among the strongest foreign currency performers against the U.S.
dollar among 152 currencies tracked by Reuters, has been boosted
by Chile's brisk economic growth and healthy prices for top
export copper. 
    It has firmed another 1.4 percent in the new year.
    President Sebastian Pinera said earlier Thursday the
government was looking closely at the peso's strength, which has
gained nearly 10 percent against the U.S. dollar since the
beginning of last year. 
    Pinera added that the central bank had the tools to
intervene in the currency exchange market, but it had to look at
the peso's long-term fundamentals versus the U.S. dollar.
    The central bank's key rate has been held at its current
level since last January as robust economic growth and moderate
inflationary pressure mostly offset risks associated with
slowing demand from top trade partner China and fallout from the
euro zone's crisis.
    "Domestically, recent output and demand indicators have
evolved in line with forecasts in the last Monetary Policy
Report," the bank said. "Headline and core inflation are below 2
percent year-on-year, while inflationary expectations in the
policy horizon are aligned with the target."
    The consumer price index was flat in December. That brought
inflation in the 12 months to December to 1.5 percent, well
below the central bank's target range of 2 percent to 4 percent
and the lowest rate since at least December 2011.
    Chile's small, export-dependent economy is forecast to have
expanded 5.5 percent in 2012, and is seen growing between 4.25
percent and 5.25 percent this year on the back of sturdy
domestic demand and strong investments. 
    "The labor market is still tight. Job creation increased and
wage growth remained stable," the bank added.
    The key rate is likely to inch up to 5.25
percent by year-end, a central bank poll of analysts showed
earlier in January. 
    Elsewhere in the region, Brazil's central bank held its
benchmark interest rate steady at record lows on
Wednesday, but said the short-term inflation outlook had
worsened in a signal borrowing costs could remain unchanged for
some time. 
    Pinera's prior comments come as the central bank and Finance
Minister in recent weeks have expressed preoccupation over the
local currency's strength, which is hurting the competitiveness
of Chilean exporters.  
    The central bank deployed a dollar-purchasing program in
2011 to curb peso strength after it appreciated to its highest
level in more than 2-1/2 years at 465.50 per
    Officials in emerging markets have blamed loose monetary
policies in rich nations for spurring destabilizing flows of hot
money to developing nations, which have higher interest rates
than the near zero short-term rates in heavyweight economies
such as the United States and Japan.

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