WRAPUP 1-Chile central bank seen easing key rate further despite inflation
By Anthony Esposito and Rosalba O'Brien SANTIAGO, Aug 8 (Reuters) - Chile's central bank is expected to cut the country's benchmark interest rate again next week, extending its easing cycle despite stubbornly high inflation, analysts said. Inflation in Chile touched 4.5 percent in July on an annualized basis, government statistics showed on Friday, within market expectations but above the central bank's target range of 2 percent to 4 percent for the fourth month in a row. Quickening inflation, spurred by a weaker peso that is making imports more expensive, has created a quandary for the bank, which has been loosening monetary policy but worries about fanning consumer price increases further. Analysts said, however, that concerns about the economy growing at its slowest pace in more than four years in June would outweigh inflation fears and lead it to make additional interest rate cuts. According to a Reuters poll published on Friday, the central bank is seen cutting its key rate by an additional 75 basis points to 3.0 percent by year-end, with the next expected reduction coming next week. "The activity and price data just published seem sufficient to justify a rate cut of 25 basis points on August 14," said Benjamin Sierra, financial markets economist at Scotiabank in Santiago. "The current trend points to another cut of a similar magnitude next month ... and with the information available now it looks likely that there is space for an additional cut during one of the three monetary policy meetings in the fourth quarter, meaning the rate would end the year at 3 percent," Sierra added. Food and transport costs pushed Chile's consumer price index up a monthly 0.2 percent in July, the official INE statistics office said. Auto sales have been particularly hard hit by waning consumer demand coupled with higher import prices, and the sale of small- and medium-sized cars fell 13 percent in July compared with a year earlier, the national automotive association said on Friday. Inflation is likely to remain above 4 percent through the end of the year, BCI economist Antonio Moncado said, adding that the impact of the weaker peso has now been largely absorbed and consumer prices are returning to normal. (Editing by G Crosse)
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