SANTIAGO, Sept 11 (Reuters) - Chile’s central bank is widely expected to cut its benchmark interest rate by a quarter of a percentage point for the seventh time since October later on Thursday, as a quickly decelerating economy outweighs fears of fanning above-target inflation.
The bank has gradually reduced the key rate by 150 basis points to its current 3.50 percent in a bid to counteract waning domestic consumption and cooling investment which have weighed on the economy.
Faced with the reality of a much sharper slowdown than had been anticipated, the bank slashed its 2014 economic growth expectations earlier this month to as little as 1.75 percent as domestic demand growth is seen sliding almost to a halt.
Economic growth in the world’s top copper producer expanded in July at its slowest pace in more than four years, though it exceeded market forecasts.
And while inflation remained above the bank’s 2 to 4 percent target range for the fifth month in a row in August, a fact that could give the bank reason to pause its easing cycle, the rise in consumer prices is seen as a temporary phenomenon linked mostly to the Chilean peso’s recent depreciation.
“Though inflation gave us a short-term surprise on the upside, we believe this is due mainly to one-time factors,” said brokerage BICE Inversiones in a note to clients.
“Meanwhile, economic activity has shown a limited evolution considering slowing investment and weak private consumption ... leading us to expect a 25 basis points reduction in the key rate to 3.25 percent for today’s meeting,” it added.
Earlier this week, over 80 percent of the 58 analysts and the 63 traders in two separate central bank polls forecast a 25 basis points cut. (Reporting by Anthony Esposito; Editing by Meredith Mazzilli)