SANTIAGO, May 30 (Reuters) - The potential consolidation of a scenario with low inflation and slowing economic activity has implications for Chile’s monetary policy, central bank president Rodrigo Vergara said in a presentation on Thursday.
In a speech before a manufacturers’ association, Vergara did not say what these implications might be for the bank’s benchmark interest rate, frozen at 5 percent since January 2012.
However, last Friday, in an interview with Reuters he said the slower pace of economic growth and soft inflation are opening up more monetary policy possibilities, in particular the option of a rate cut but other factors must be considered and the stance on interest rates is still neutral
A cooling of Chile’s red-hot economic growth has led traders to switch to a cut within a year, from prior expectations for a rate hold through a two year horizon, according to a central bank survey released on May 22
In his comments on Thursday, Vergara also noted that market expectations no longer point to a rate hike in the benchmark rate.
”First quarter data in Chile confirm a deceleration of activity and demand, somewhat greater than what was forecast in the IPoM, he said, referring to the bank’s quarterly monetary policy report released in early April.
He added that the “The potential consolidation of a scenario of low inflation and a slowdown of (economic) activity has implications for monetary policy.”.
Chile’s economic growth eased in the first quarter to 4.1 percent compared with a year earlier, its slowest pace of expansion since late 2011.
Meanwhile, inflation in the 12 months through April came in at 1.0 percent, below the bottom end of the central bank’s 2 to 4 percent tolerance range.