Chile's central bank maintains interest rates for 16th straight month

As largely anticipated by market participants, the Chilean central bank's monetary policy committee maintained the benchmark interest rate at 5.00% for the 16th consecutive month. The post-meeting statement sounded slightly more constructive with regards to the external front, but acknowledged that domestic activity and demand decelerated in 1Q13. The committee noted that global financial conditions have improved somewhat and flagged the renewed monetary easing by various central banks. The US dollar has appreciated in international markets, and while the peso has depreciated it remains aligned with its long-term fundamentals On the domestic front, both activity and demand decelerated during 1Q13 and the labor market remains tight. And while both headline and core inflation measures keep hovering around an annual 1.0%, inflation expectations continue well-anchored to the 3% target over the relevant policy horizon, the statement reads. In a research note, Goldman Sachs said that the language in the policy statement was "neutral." Central bank directors had until recently expressed concern about potential overheating risks and the build-up of domestic and external imbalances in the economy. "In this context, the referred accommodation of the real business cycle is, if contained, a positive development," US bank's economist for Latin America Tiago Severo wrote. After expanding at a brisk 6.5% in January, the Chilean economy grew only 3.8% and 3.1% in February and March. According to Severo, it is difficult to interpret whether the disappointing growth figures in February and March were a harbinger of a more pronounced slowdown or were just a blip caused by adverse calendar effects. Goldman Sachs is expecting interest rates in Chile to remain unchanged during the rest of the year. "Nevertheless, we acknowledge that further weakness in the incoming data on activity may open a window of opportunity for the central bank to cut the policy rate in order to better align domestic and global monetary conditions," Severo wrote.