(Adds central bank’s comments, background)
By Anthony Esposito
SANTIAGO, Oct 16 (Reuters) - Chile’s central bank cut the benchmark interest rate by 25 basis points to 3.0 percent on Thursday, as widely expected, but removed its easing bias in a likely signal a year-long loosening cycle was over.
The bank cut the rate for the fourth straight month, despite above-target inflation. The economy of the top copper producer has slowed to levels not seen in over four years, as investment dwindles, especially in the mining sector, and once-hot consumer demand cools.
“Output, demand and employment indicators continue to reveal the low dynamism of the Chilean economy,” the bank said in its post-meeting statement. Economic growth is expected to be 2 percent in 2014 and then pick up to about 3.6 percent next year.
In its effort to prop up the economy, the bank has now reduced rates by a total of 200 basis points since October 2013.
The bank did, however, alter its recent bias in Thursday’s post-meeting statement, indicating, as many had predicted, that its easing cycle had drawn to an end for now.
It said: “Any future changes in the monetary policy rate will depend on the implications of domestic and external macroeconomic conditions on the inflationary outlook.”
The bank had previously said it would “consider the possibility of making additional cuts” or “consider the convenience of introducing further monetary stimulus”.
The more neutral stance was likely to continue for the immediate future, Santander said in a note to clients.
“We believe that after this cut the monetary policy bias will be neutral, at least until the external scenario clears up and inflation starts to show signs it is easing as expected and we have new data on domestic activity,” it said.
The central bank said that inflation would probably stay above the upper end of its 2 to 4 percent tolerance range “for some months, to later return to target”. It added it would continue to monitor inflation with a keen eye.
Twelve-month inflation stayed above the bank’s tolerance range for a sixth consecutive month in September, nearing 5 percent.
But the bank has repeatedly signaled it sees high inflation as a transitory phenomenon, due in large part to the peso currency’s sharp depreciation versus the U.S. dollar. (Reporting by Anthony Esposito; Editing by Chris Reese and Grant McCool)