June 16, 2016 / 10:37 PM / 2 years ago

UPDATE 1-Chile central bank holds interest rate at 3.5 pct

(Adds banks comments, background details)

SANTIAGO, June 16 (Reuters) - Chile’s central bank kept its benchmark interest rate steady at 3.5 percent on Thursday, as widely expected, but signaled further rate hikes to rein in above-target inflation.

Inflation has remained above the ceiling of the central bank’s 2 to 4 percent tolerance range for the better part of the last two years, though the bank has said it sees it easing in coming months.

In an attempt to cool rising prices, the bank increased the benchmark rate 50 basis points in late 2015, but a sluggish economy in the top copper exporter has led it to pause since.

In its decision statement, the bank said partial second-quarter output and demand data “reflect limited growth.”

However, it said “monetary policy will need to continue to normalize” at a pace that is “implicit” in its last quarterly Monetary Policy Report (IPoM), which it published on June 6.

In that IPoM, the bank said it would continue normalizing the monetary policy rate within the two-year policy horizon, in line with forecasts for the economy during that period, but at a somewhat slower pace than anticipated in March.

“Nonetheless, a significant deviation of inflation’s convergence (to target) may change said pace,” the bank said in its post-meeting statement.

The bank reiterated that it will continue to monitor the evolution of inflation with “special attention.” (Reporting by Anthony Esposito and Rosalba O’Brien, editing by G Crosse)

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