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WRAPUP 3-Chile rates seen on hold as March inflation slows
April 5, 2012 / 3:12 PM / 6 years ago

WRAPUP 3-Chile rates seen on hold as March inflation slows

* 12-month CPI to March drops below cenbank target range
    * Economic activity expands 6.1 pct in Feb year/year
    * March CPI, IMACEC likely to support cenbank's rates stance

    By Antonio De la Jara and Anthony Esposito	
    SANTIAGO, April 5 (Reuters) - Chilean inflation slowed in
March and economic activity was firm in February, data showed on
Thursday, suggesting the central bank will hold rates in the
months ahead as it weighs global economic risks against
better-than-expected domestic data.	
    Chile's consumer price index rose 0.2 percent in
March, the government statistics agency said, coming in
significantly below expectations for a 0.5 percent increase, as
higher prices for food and school-related goods were offset
somewhat by a drop in transport costs. 	
    Meanwhile, economic activity grew 0.1 percent in February
from a month earlier, led by gains in retail, manufacturing and
mining, and was up 6.1 percent year-over-year,
slightly below market expectations for 6.4 percent growth.
    "The very favorable March inflation report and solid but not
overly exuberant expansion of the economy are likely to keep the
central bank on hold for the foreseeable future," Goldman Sachs
economist Alberto Ramos said in a note to clients.	
    Chilean stocks closed higher and the peso ended
mildly weaker versus the dollar on Thursday after the CPI data,
as a higher inflation rate in March would likely have increased
pressure on policymakers for an interest rate hike by the
world's top copper producer. 	
    All 14 economists and traders polled by Reuters following
Thursday's CPI data anticipate rates will be held steady for a
third consecutive month in April, and most expect it will be
held at least through the first half of the year.
     The central bank in January cut rates to 5.0 percent, the
first reduction in 2-1/2 years, on fears that slowing global
demand would hit the export-dependent country, but the slowdown
in Chile has so far been softer than expected.	
    "Important risk scenarios remain," central bank president
Rodrigo Vergara said in a presentation on Thursday, emphasizing
the string of stronger-than-expected economic data was
insufficient to indicate Chile had dodged a sharp slowdown.	
    Vergara said the bank is not considering intervention in the
local foreign exchange market, as it did last year to tame a
strong peso, adding that frictions there had abated.
    The key rate is now at levels neutral to the economy, he
said, though some in the market see rates increasing by year-end
on an uptick in inflation in December and February and a
healthier global economic outlook.  	
    Chile's central bank on Tuesday revised upward its 2012
economic growth forecast to between 4.0 percent and 5.0 percent
from 3.75 percent and 4.75 percent and raised its inflation view
to 3.5 percent from 2.7 percent. 	
    Core CPI held steady in March and inflation in the 12 months
to March totaled 3.8 percent, retreating just below the 4.0
percent ceiling of the central bank's tolerance range for the
first time since November.	
    Inflation rates in Brazil and Colombia also slowed in March,
data showed on Thursday. 	
     "There are very few occasions when we can comment on good
news in terms of growth and good news in terms of inflation,"
Finance Minister Felipe Larrain said following the figures'
release. "But we haven't won the battle," he added, alluding to
lingering external risks to Chile's relatively small and open
     Under the bank's new methodology to calculate IMACEC,
seasonally-adjusted economic activity fell 0.9 percent in
January from December, and grew 2.2 percent in December from the
month prior. 	
    The central bank calculates its month-on-month IMACEC data
in seasonally-adjusted terms. The monthly IMACEC measures more
than 90 percent of the components comprising Chile's gross
domestic product, which is published quarterly.

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