(Adds central bank chief’s comments, background)
By Anthony Esposito
SANTIAGO, April 23 (Reuters) - Chile’s central bank will keep its benchmark interest rate “relatively low” for a prolonged period, bank Governor Rodrigo Vergara said on Thursday.
The bank cut the rate 200 basis points between October 2013 and October 2014 to stimulate a cooling economy, and it has said it will likely begin raising rates again toward the end of 2015 or the beginning of 2016, depending on how the economy and inflation evolve.
“We believe that the interest rate is going to remain relatively low for a prolonged period of time. In other words, the adjustment (higher) is going to be moderate, gradual over time,” Vergara said in a presentation at a business forum.
“The word ‘normalize’ should not be a cause for concern. If we’re normalizing (rates) it is precisely because the economy is starting to have somewhat higher rates of growth,” he said.
Chile’s economy grew at a five-year low of 1.9 percent in 2014 due to cooling investment and domestic demand, but growth is expected to rebound this year to a range of 2.5 to 3.5 percent.
Vergara warned that growth will not necessarily increase steadily, pointing to the impact of heavy rains and floods in Chile’s north in March that washed out roads, destroyed homes and stalled some mining operations.
“The impact...is not a small one,” Vergara said.
In March, month-on-month inflation in Chile was 0.6 percent, lower than the market expected. The annual rate has been above the bank’s 2 to 4 percent tolerance range for the past year.
“Beyond March’s data, annual inflation continues to be elevated and its convergence to 3 percent will be slower than we thought some months ago,” Vergara said. (Writing by Anthony Esposito and Rosalba O‘Brien; Editing by Peter Galloway)