October 19, 2017 / 10:28 PM / a year ago

UPDATE 1-Chile central bank holds interest rate at 2.5 percent

(Adds detail from central bank statement, context, comment)

SANTIAGO, Oct 19 (Reuters) - Chile’s central bank held the benchmark interest rate at 2.5 percent on Thursday, in line with market expectations, but warned it would pay close attention to risks of a delay in the convergence of inflation toward its target.

Central Bank President Mario Marcel told Reuters last week the monetary authority would evaluate whether a surprise drop in consumer prices in September would impact its inflation target of 3 percent over a two-year horizon. The bank brought its last easing cycle to an end in May and has held the rate steady since then.

In its statement, the bank’s board said inflation would remain below its target in the short term, which could prompt it to change its interest rate.

With the 0.2 percent drop in September, annualized inflation fell to 1.5 percent, while market expectations for short-term inflation fell significantly.

“The October consumer price index will determine whether the (interest rate) adjustment materializes,” Chilean bank Bci said in a note on Thursday.

Market expectations for October inflation are in the range of 0.2 to 0.3 percent. Economists expect November and December inflation around zero, which would leave year-end inflation between 1.6 and 1.8 percent. (Reporting by Antonio de la Jara; Writing by Luc Cohen; Editing by Sandra Maler and James Dalgleish)

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