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By Chris Vellacott
LONDON, Oct 13 (Reuters) - Inflation in Chile, currently well above the central bank’s tolerance band, will ease to target levels by the second quarter of next year, Governor Rodrigo Vergara said on Monday.
The central bank is widely expected to cut interest rates by a quarter point to 3 percent when it meets this Thursday, prompted by slowing growth and above-target inflation.
That will extend its year-long policy easing cycle that has cut rates by 175 basis points. However inflation stood at 4.9 percent in the 12 months to September, its sixth month in a row above the central bank’s 2-4 percent tolerance range.
Vergara said the policy loosening and a weaker peso, while helping improve the current account, had been behind higher inflation. But he saw this as a short-term effect.
“That is a transitory effect and we expect the inflation rate to be back on target by the second quarter of next year,” he told an investment conference.
Hurt by the rate cuts and the falling price of copper, Chile’s main export, the peso has depreciated by around 12 percent against the dollar this year. It is currently trading just off 5-1/2-year lows hit last month.
Analysts polled by Reuters forecast that after a likely rate cut this week, the central bank will hold policy steady for the next 11 months.
Vergara also said that growth would accelerate to between 3 percent and 4 percent next year but warned it would likely fall short of the potential 4 percent-plus annual rate.
Growth is expected to be around 2 percent in 2014, according to the government, down from last year’s 4.1 percent and the worst since the 2009 recession. That is pushing the government to increase public spending to shore up domestic demand. (Writing by Sujata Rao; Editing by Toby Chopra/Ruth Pitchford)