UPDATE 1-Chile's central bank keeps rates steady, says open to future cuts

jueves 15 de mayo de 2014 18:33 GYT

(Recasts; adds details on decision, central bank's comments)

By Anthony Esposito

SANTIAGO May 15 (Reuters) - Chile's central bank kept its key interest rate on hold at 4.0 percent for a second consecutive month on Thursday, as expected, after a recent spike in consumer prices pushed annual inflation above the bank's stated tolerance range.

The bank reiterated in its post-meeting statement that it will consider future rate cuts depending on the evolution of domestic and external macroeconomic conditions and implications on the inflation outlook.

Weak economic growth and rising prices have put the bank in a monetary policy conundrum. The slowing economy is widely seen as needing more stimulus, but cutting the interest rate too early could spark fears it is fanning inflation.

In the 12 months through April, inflation broke above the central bank's tolerance target of 2 percent to 4 percent for the first time in around two years, while the economy of the top copper producer grew at its slowest pace in the first quarter since early 2010.

The bank said that in the most likely scenario the jump in inflation, which is due in part to the Chilean peso's depreciation, will be temporary.

The depreciation of the peso - it has weakened nearly 5 percent against the U.S. dollar this year following last year's drop of 9 percent - has made imported goods more expensive, driving up prices.

Previously, the bank pointed out that it expected inflation to test the high end of its tolerance range for some months, but that inflation should cool down as economic deceleration outweighs the effect of the weaker peso.   Continuación...