SANTIAGO, Feb 18 (Reuters) - Chile’s central bank is widely expected to cut the benchmark interest rate later on Tuesday as it seeks to spur growth in a flagging economy.
The main question for the market is if the bias given by the bank’s board will remain towards further easing in coming months or if it will change gear to neutral.
The bank has entered an easing cycle, making 25-basis-point reductions in October and November to take the rate from 5.0 percent to 4.50 percent, before pausing in December and January.
However, in the statement published after the January monetary policy meeting it hinted strongly at future cuts.
Since then, top copper producer Chile has reported anemic monthly growth and falling exports, while inflation has been contained despite a weakening peso.
“The cut has been well signaled by the central bank, who adopted an explicit easing bias (in January) ... We see no compelling reasons for the monetary authority to have changed its mind,” said BNP Paribas in a note to clients.
In a central bank poll of 54 traders published last week, over 80 percent forecast the bank would cut the rate to 4.25 percent at its February meeting. A poll of analysts gave a similar response.
A majority predict a further reduction within the first half of 2014 and will be watching to see if the bank’s guidance changes after Tuesday’s meeting. Some expect that recent turmoil in emerging markets will encourage the bank to adopt a more moderate bias for the time being.
“Probably there will be a pause before continuing with this process in coming months, so as not to put further pressure on the currency, with the consequent risks to short-term inflation,” said brokers at Banchile Inversiones.
The decision of February’s monetary policy meeting is expected at 1800 local time (2100 GMT). (Reporting by Rosalba O‘Brien; Editing by Nick Zieminski)