November 2, 2016 / 4:16 PM / 2 years ago

Chile cenbank should cut rates if inflation eases further -IMF

SANTIAGO, Nov 2 (Reuters) - The International Monetary Fund (IMF) suggested on Wednesday that Chile’s central bank should cut its benchmark interest rate if inflationary pressures continue to ease and growth risks increase in coming months.

Chile’s central bank, which will be headed by economist Mario Marcel as of December, has held interest rates steady at 3.5 percent since January and recently adopted a neutral stance on monetary policy as inflation has cooled.

“The central bank should cut rates if disinflation becomes broad based and more persistent, and growth risks deepen in coming months,” the IMF said in a statement following its annual consultation with Chile.

“The expected widening of the output gap and slowing wage growth have raised the risk that inflation could undershoot,” the bank’s 3 percent target, it added.

The IMF gave its support to key elements of President Michelle Bachelet’s reform agenda, saying that structural reforms on issues such as energy and education adopted since 2014 are setting the stage for stronger economic growth in the world’s top copper producing nation.

However, short-term costs need to be managed carefully, it warned.

Among other legislation, center-left Bachelet’s government has pushed through tax and education reforms. It also passed a labor law intended to strengthen unions, watered down after key measures were struck by a constitutional court.

The IMF recommended that the reform agenda could be made more effective by addressing ambiguities in the new labor law, as well as fast-tracking a planned infrastructure fund and increasing professional training. (Reporting by Anthony Esposito; Editing by Andrew Hay)

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