Chilean cenbank open to new interest rate cuts
As widely expected, Chile's central bank made a 25-basis point cut to the policy interest rate to 3.25% after having kept it at 3.50% for a year.
Explaining the rate reduction in a release, the central bank pointed to improved global financial conditions, the fact that copper and oil prices have remained at levels above those in mid-2106 despite fluctuation, and that November inflation surprised to the downside, taking annual inflation to 2.7%, adding that it is expected to subside to the lower reaches of the 2-4% target range in the coming months.
Figures on economic activity show a weak performance, but now concentrated in sectors other than natural resources, while demand and the labor market are continuing the trends seen in previous quarters, the monetary authority underlined.
The central bank "board believes that if the recent trends of the economic scenario persist, as well as their implications for mid-term inflation, it will be necessary to increase the monetary stimulus," it said, pointing out that the developed world is performing better and there is greater weakness in Latin America.
Analysts consulted in the central bank's monthly survey expect another rate cut in the coming months, taking the benchmark interest rate to 3.0%, while GDP growth is expected to show only scant improvement compared to 2016, reaching 2.0%.
"We've pencilled in a further 25bp cut at next month's meeting, with the possibility of another in March. By Q2, however, inflation is likely to have bottomed out and our sense is that additional easing from here will require the economy to slow further. Either way, the key message for now is that the central bank has more work to do," read a statement from UK-based research firm Capital Economics.
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