Reuters: US Dollar Report: UPDATE 1-Chile central bank ups GDP growth view, cuts inflation view

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UPDATE 1-Chile central bank ups GDP growth view, cuts inflation view Sep 5th 2012, 14:29 Tweet Share this Email Print Wed Sep 5, 2012 10:29am EDT * Central bank sees 2012 GDP growth 4.75-5.25 pct * Central bank sees 2012 CPI 2.5 pct from prvs 2.7 pct view * Bank says forecasts assume benchmark rate held in short-term By Antonio De la Jara SANTIAGO, Sept 5 (Reuters) - Chile's central bank on Wednesday raised its 2012 economic growth view and cut its inflation projection, adding the forecasts rested on the assumption of no short-term changes in the bank's benchmark interest rate of 5.0 percent. The bank saw 2012 economic expansion at between 4.75 percent and 5.25 percent in its much awaited quarterly Monetary Policy Report (IPoM). That is above the 4 percent to 5 percent economic growth range projected in the last IPoM, issued three months ago. The bank's IPoM also cut its 2012 inflation expectations to 2.5 percent from its previous 2.7 percent view. Chile has been prepping its small, export-dependent economy for a slowdown on the back of ebbing global demand, but the country's brisk domestic demand, tight labor market and robust economic activity have so far proven more resilient than expected. While slower inflation could theoretically give the bank more room to ponder cutting interest rates, the bank kept to its wait-and-see stance. "The rate is within a range considered neutral, which gives flexibility to wait for the concrete effects (of external woes) on the Chilean economy to become clearly visible," the bank said in its report. In standard monetary policy parlance, a neutral interest rate neither spurs or curbs economic growth, all other factors being equal. The rate will likely be held for an eighth month running at the bank's monetary policy meeting in September, and in three months, but it is seen being cut to 4.75 percent within six months, the bank's fortnightly poll of traders showed last month. Next year, growth in the world's No. 1 copper producer is seen slowing to between 4 percent and 5 percent and inflation is expected to pick up to around 3 percent, which is the midpoint of its target range, the bank's IPoM report said. The bank said it considered that the Chilean peso's real exchange rate was ranging on the low end of levels consistent with its long-term fundamentals. In Chilean financial parlance, a "lower" rate for the Chilean peso, implies a strengthened peso since buying dollars cost less in Chilean peso terms. The real exchange rate is a measure used by the central bank in part to gauge Chilean exports' competitiveness. The peso has strengthened about 8 percent against the U.S. dollar this year. "The current level of the real exchange rate is located beneath its average over the last 15 to 20 years and on the lower end of values coherent with its long-term fundamentals," the bank said. The central bank also raised its view for domestic demand, which has been a pillar of Chile's economy, to 5.6 percent growth this year from a previous forecast of 5.2 percent. Tweet this Link this Share this Digg this Email Reprints Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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