UPDATE 1-Chile's central bank holds interest rate at 3.0 pct
SANTIAGO Dec 11 (Reuters) - Chile's central bank held the benchmark interest rate steady at 3.0 percent on Thursday, as widely expected by the market, and retained its neutral policy stance as an above-target inflation rate and a weak economy kept its hands tied.
The bank had cut the interest rate 200 basis points between October 2013 and October 2014 to stimulate a flagging economy, but has recently indicated that it wants to wait for inflation pressures to cool before loosening borrowing costs further.
"Annual inflation dropped, but it remains above 5 percent and core indicators are above 4 percent. In the most likely scenario, inflation will stay above the upper boundary of the tolerance range still for some months," the central bank said in its post-meeting statement.
It also said it would carefully monitor how inflation evolved, but for the second month in a row, previous comments that inflation would later return to its target range were conspicuously absent.
Inflation has remained stubbornly above the bank's 2 percent to 4 percent target range since April.
The bank pointed out that recent activity, domestic demand and unemployment data underscore "the low dynamism of the Chilean economy."
The economy of the world's top copper producer has been slowing for several quarters, hampered initially by stagnating investment, most notably in the mining sector, but was compounded by falling consumption.
In the July-to-September period, Chile posted its weakest quarterly growth since the third quarter of 2009, when the economy was in recession.
But the bank said that the impact of its easing cycle was already being felt.
"Local financial conditions reflect the impact of the monetary stimulus," it said. (Reporting by Santiago bureau, writing by Anthony Esposito; editing by James Dalgleish and G Crosse)
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