December 29, 2016 / 3:10 PM / in a year

UPDATE 1-Chile manufacturing down in November, rate cut likely

(Rewrites throughout, adds details, context, comments)

SANTIAGO, Dec 29 (Reuters) - Chilean manufacturing and copper production were relatively weak in November, government data showed on Thursday, likely paving the way for a short-term interest rate cut by the central bank.

Manufacturing fell 2.1 percent in November from a year earlier due to weak food and beverage, chemical, and non-metallic mining production, Chile’s INE statistics agency said, slightly underperforming a Reuters forecast for a 1.9 percent drop.

Production of copper, by far Chile’s most important export, fell 1.3 percent in annual terms, which the government attributed to maintenance at an unspecified mine and falling ore grades.

Both numbers represented improvements on a moribund October, during which the lingering effects of a 2015 volcanic explosion severely affected the nation’s salmon industry and work stoppages cut copper production. Manufacturing rose 4 percent in November in monthly terms, while copper production rose 7.8 percent in comparison with October.

Retail sales were also a bright spot, registering a 5 percent jump in November year-on-year.

Overall, however, analysts predicted mediocre yearly manufacturing figures would likely justify a rate cut in the benchmark interest rate that many observers see as imminent.

In a poll of 63 traders published by the bank on Wednesday, respondents predicted a 25 basis point rate cut in January, and another 25 basis point cut in the next three months.

“Overall, despite some improvement from the previous month, the industrial sector remained weak..., suggesting that 4Q2016 will register a considerable annual contraction,” said Goldman Sachs economist Alberto Ramos.

“We believe the November activity figures reinforce the case for a rate cut, and expect the [Monetary Policy Committee] to deliver a 25 (basis point) cut to 3.25 percent at the January meeting.”

In its quarterly Monetary Policy Report released last week, Chile’s central bank predicted gross domestic product growth in the top copper exporter of 1.5 to 2.5 percent in 2017 and 1.5 percent in 2016.

In a note to clients after Thursday’s data, BBVA predicted that government data next week will show economic activity rising 1 to 1.5 percent in November. (Reporting by Gram Slattery; Editing by Bernadette Baum)

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