Reuters: US Dollar Report: UPDATE 1-Chile cbank says ready to act if risks materialize

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UPDATE 1-Chile cbank says ready to act if risks materialize May 24th 2012, 14:04 Thu May 24, 2012 10:04am EDT * Bank sees medium-term inflation risks persisting * Bank seen holding key rate steady at 5.0 pct this year * Europe crisis poses "significant" risk By Moises Avila SANTIAGO, May 24 (Reuters) - Chile is well prepared to face financial turbulence, and short-term inflation risks have eased, but monetary policy must be prudent and the central bank is ready to act if global economic risks materialize, bank president Rodrigo Vergara said on Thursday. The bank is no longer seen raising its key interest rate by year-end, and the rate is now seen steady at its current 5.0 percent in December and in mid-2013, a central bank poll of traders showed on Wednesday. Vergara said inflation risks persisted in the medium-term, adding the bank has room to act on monetary policy. "Given financial and trade interconnections, it is unreasonable to think that external events will not have an effect on our country," Vergara told a business forum, adding the depreciation of Chile's peso had been less acute than currencies in other economies. "The bank's board is watching these events carefully and with concern," he said. "Monetary policy must be prudent and be ready to act if one or more risks materialize." The central bank last week held its key rate steady for a fourth month running last week, citing risks associated with the euro zone's financial turmoil, a tight local labor market and easing short-term domestic inflation expectations in its decision. The bank is expected to watch events in Greece and elsewhere in Europe, although some see a rate hike toward the end of the year as the economy gradually slows. Chile's economy grew more slowly in the first quarter than in the prior three months as an expected slowdown took hold, the central bank said on Friday, reinforcing expectations the bank will keep its key interest rate steady in coming months. "The Chilean economy is showing activity and demand growth rates more in line with trend, but they continue to be above forecast," Vergara said, adding Chile's dependence on emerging markets like China, a top copper consumer, was helping to offset Europe's impact. Consumer credit had shown signs of moderation, he added, but said commercial loans continued to rise. Should the euro zone crisis deepen and prices for commodities such as Chile's main export, copper, fall further, some analysts say a sharper slowdown in Chile's small and export-dependent economy is nearly inevitable and that rate cuts are possible. Link this Share this Digg this Email Reprints

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