(Adds central bank’s comments, background)
By Anthony Esposito and Antonio De la Jara
SANTIAGO, June 3 (Reuters) - Chile’s central bank said on Wednesday it could take longer than anticipated to gradually start hiking its key interest rate, as economic growth has been weaker than previously forecast and inflation has been quicker to cool.
In its quarterly Monetary Policy Report (IPoM), the central bank cut its view for 2015 economic growth in the top copper producer to between 2.25 percent and 3.25 percent, from a prior forecast of 2.5 percent to 3.5 percent, citing soft private spending and devastating floods in March in the northern part of the country.
It sees annual inflation ending the year at 3.4 percent, compared to its previous view of 3.6 percent.
“Somewhat lower dynamism of activity and a somewhat faster convergence of inflation suggests that, if our base scenario assumptions are right, the discussion on the gradual withdrawal of monetary stimulus could be delayed beyond that suggested in March,” the report said.
Central Bank President Rodrigo Vergara said on April 1 that the central bank’s operating assumption was that it would raise the benchmark interest rate toward the end of 2015 or the start of next year.
It cut the rate by 200 basis points between October 2013 and October 2014, but soft economic growth and rising inflationary pressures - annual inflation has been above its 2 percent to 4 percent target range for over a year - have stayed its hand.
Chile’s economy, which grew at a five-year low of 1.9 percent in 2014, has been held back by waning consumer and business sentiment.
“It is especially worrisome that expectations remain in clearly pessimistic territory, a situation which if not reversed will limit the recovery of growth in the second half of the year,” the central bank said.
Ongoing and much-publicized investigations into whether candidates across the political spectrum financed their campaigns illegally as well as accusations that President Michelle Bachelet’s son used his connections to help get his wife preferential access to a $10 million loan also have undermined sentiment.
Meanwhile, business leaders have complained that Bachelet’s key social and economic policies, including tax, labor and education reforms, have created a climate of uncertainty and are crimping investment. (Editing by Chizu Nomiyama and Paul Simao)