LONDON, Sept 8 (Reuters) - Chile may have to rethink its plans to raise interest rates later this year if “something really bad” happens in China and further hurts its economy, the head of the Chilean central bank said on Tuesday.
“Our baseline scenario is that we will start raising interest rates later this year ... But obviously if something really bad happens in China we would have to see,” Rodrigo Vergara told Reuters on the sidelines of a Chile investment conference in London.
The bank has kept the benchmark interest rate on hold at 3.0 percent since October, caught between sluggish growth and worries about fanning above-target inflation.
Vergara said inflation is expected to stay above 4 percent in Chile for several more months. “The rise in inflation is the central bank’s main challenge,” he said.
The bank’s annual inflation target of 2-4 percent has been exceeded following the rapid depreciation of the Chilean peso against the dollar, down over 14 percent in the year to date.
Chile’s problems partly stem from the slowdown in China which has hammered the price of copper, Chile’s main export. “We are monitoring what happens in China very closely,” Vergara said. “The risks to growth are on the downside.”
Reporting by Marc Jones; Writing by Claire Milhench; Editing by Catherine Evans