July 14, 2016 / 10:37 PM / 2 years ago

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

(Adds detail from statement, background)

By Rosalba O’Brien

SANTIAGO, July 14 (Reuters) - Chile’s central bank kept its benchmark interest rate steady at 3.5 percent on Thursday, as widely expected, maintaining its bias toward gradual rate hikes.

The bank has kept the interest rate steady since raising it by 50 basis points in late 2015 to help contain stubbornly high inflation.

However, continually weak data in the top copper exporter has deterred the bank from further hikes in the short term, while signs that inflation may be starting to cool has led the market to predict that the rate will stay on hold for the rest of 2016.

This view was bolstered after Chile’s central bank head Rodrigo Vergara told Reuters earlier this month that the period of rate holds may be longer than previously forecast.

“June’s (inflation reading) was somewhat higher than expected, but its path is in line with the forecast...the evolution of these variables will continue to be monitored with special attention,” the bank said in its post-meeting statement.

Inflation last month came in above market forecasts, with the annual figure currently clocking in at 4.2 percent, just above the bank’s 2 to 4 percent target range.

“To ensure the convergence of inflation to the target, monetary policy will need to continue to normalize, at the pace that is implicit in the latest Monetary Policy report’s baseline scenario. Nonetheless, a significant deviation of inflation’s convergence may change said pace,” said the bank.

Reporting by Rosalba O'Brien; Editing by Chris Reese and Diane Craft

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