June 14, 2018 / 2:34 PM / 5 months ago

UPDATE 2-Chile's central bank raises 2018 growth, inflation forecasts

 (Adds comments from central bank president, political context)
    By Dave Sherwood  and Antonio De la Jara
    SANTIAGO, June 14 (Reuters) - Chile's central bank on
Thursday revised upward its forecast for full-year 2018 growth
amid an increase in investment and consumption that it said
would spur inflation toward the bank's target of 3.0 percent.
    In a presentation before senators in Congress, Central Bank
President Mario Marcel said he expected GDP growth in the South
American country of between 3.25 percent to 4.0 percent for
2018, up slightly from a previous forecast of 3.0 percent to 4.0
percent.
    "More than a result, this is good start to a more favorable
economic cycle ... it is important that the recovery of
investment deepens, and that the job market strengthens," Marcel
told lawmakers.
    The increase in optimism in the world's top copper producer
marks a sharp turnaround from the sluggish economy of the past
several years, as investment in mining and related sectors
wallowed alongside low global prices for the red metal. Economic
growth slumped as low as 1.5 percent in 2017.
    The bank boosted its forecast for domestic demand to 4.1
percent, from 4.0 percent previously, and predicted an increase
in investment of 4.5 percent this year. Consumption would rise
3.6 percent, the bank said.
    President Sebastian Pinera took office in early March on
promises to combat economic "stagnation" and jump-start
investment.
    "Investment will drive the economy these next three years,"
Economy Minister Jose Valente said following the release on
Thursday of the bank's quarterly report on monetary policy. 
    The brighter investment outlook also prompted the central
bank to hike its inflation forecast to 2.8 percent for 2018,
from 2.3 percent previously, reducing the risk of setbacks as
inflation gradually edges toward the bank's target rate of 3.0
percent in 2019.
    The bank said the forecast pointed to a base case scenario
of maintaining monetary stimulus at or near current levels in
the short term.
    "The probability of needing a more expansive interest rate
has been reduced," Marcel said.
    Chile produces approximately one-third of the world's copper
and its economy closely tracks global prices of the red metal,
which have spiked by more than 50 percent since touching a
nine-year low in 2016.
    The bank said it had also raised its forecast for the price
of copper in 2018 to $3.10 per pound from $3.05 previously.    
    
                      Forecast     Previous      Forecast
                      for 2018   2018 forecast   for 2019
 GDP growth (pct)    3.25-4.0       3.0-4.0      3.25-4.25
 Inflation (pct)        2.8           2.3           3.0
 Domestic demand        4.1           4.0           3.9
 (pct)                                           
 Copper price (in      $3.10         $3.05         $2.95
 dollars)                                        
 
 (Reporting by Dave Sherwood; editing by Bernadette Baum, G
Crosse)
  
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