By www.CentralBankNews.info      The Central Bank of Chile kept its policy rate steady at 5.0 percent, as widely expected, saying domestic output and demand expanded above forecasts in the third quarter but inflation expectations are in line with the bank’s target.
    Banco Central de Chile, which has held rates steady since a 25 basis point cut in January, said global financial conditions were better than a month ago, but risks from the euro zone’s fiscal and financial situation are still high and the risk of a sharp fiscal adjustment in the United States is still present.
    Economic growth remains weak in developed economies while more positive signs have been seen in some emerging economies, the bank said in a statement.
    Chile’s Gross Domestic Product expanded by 1.4 percent in the third quarter from the second for an annual rise of 5.7 percent, up from a second quarter rate of 5.5 percent.
    The inflation rate fell by a larger-than-expected 0.5 percentage points in November to an annual rate of 2.1 percent, down from October’s 2.9 percent, but the bank said the fall was due to one-time factors.
    Chile’s central bank targets annual inflation of 3.0 percent and reiterated its commitment to conduct monetary policy “with flexibility” so it achieves this target.

    www.CentralBankNews.info

WRAPUP 1-Surprise Chile CPI drop gives monetary policy a breather

* Key interest rate seen holding at 5 percent in coming
months
    * CPI surprisingly fell 0.5 percent in November
    * Consumer price fall is steepest monthly decline in 3 years
    * Inflation in 12 months to November is 2.1 percent
    * Chile has first trade surplus after four monthly deficits


    By Antonio De la Jara and Anthony Esposito and Felipe
Iturrieta
    SANTIAGO, Dec 7 (Reuters) - Chile's consumer price index
unexpectedly fell 0.5 percent in November, far below market
expectations, prompting Finance Minister Felipe Larrain to say
on Friday it allows for "tranquility" in terms of monetary
policy.
    The key interest rate has stayed on hold at 5.0
percent since a cut in January largely because the world's No. 1
copper producer has shown better-than-expected resilience to
slowing demand from top trade partner China and fallout from the
euro zone's crisis.
    "We have a particularly positive situation and I think that
allows for more tranquility in terms of monetary policy,"
Larrain told reporters after the monthly CPI posted
its steepest decline in three years.
    The CPI dropped chiefly due to lower prices for transport,
food and non-alcoholic beverages, the INE statistics agency
reported earlier Friday.
    November's tumble in consumer price was steeper than
forecast by all of the 11 analysts and economists surveyed in a
Reuters poll. The range of their estimates went from a fall of
0.3 percent to an increase of 0.4 percent, with the median
estimate at zero. 
   Easing inflation comes as a relief for the bank after a
surprisingly high 0.6 percent rise in October CPI and
stronger-than-expected 0.8 percent increase in September, which
were fueled in part by robust domestic demand. 
    "This drop in the monthly CPI confirms the central bank's
neutral monetary policy stance and makes an interest rate hike
more unlikely for now," said Hernan Jimenez, analyst at Forex
Chile in Santiago.
     Worldwide, standard monetary policy is for a central bank
to raise interest rates to cool inflation but lower them to spur
economic growth, if the latter takes priority over inflationary
concerns.
     Chile's central bank is seen holding its rates at 5.0
percent again at its monetary policy meeting on Dec. 13, and it
is seen at that level in three and six months, the bank's last
fortnightly poll of traders showed. 
    Strong domestic demand and investments have also boosted
Chile's economic growth. Larrain said on Wednesday he expected
the small, export-dependent economy to expand about 5.5 percent
this year, adding he doesn't see it overheating. 
    
   

    Core inflation, which excludes fruits, fresh vegetables and
fuel, was minus 0.2 percent in November, the biggest decline
since a 0.2 percent decline in August. In October the core CPI
rose 0.2 percent.
    Overall, consumer prices rose 2.1 percent in the 12 months
to November, well below the 3.0 percent midpoint of the central
bank's policy inflation target range.
    Annual inflation will likely end the year around 2 percent,
Larrain said, echoing central bank president Rodrigo Vergara's
comments in an interview with local newspaper El Mercurio
published on Sunday. 
    Nearby, Brazil's inflation accelerated more than expected in
November after transportation and electricity prices spiked,
suggesting the central bank ran out of leeway to further cut
borrowing costs.    
    
    FIRST TRADE SURPLUS IN FIVE MONTHS   
    Chile posted its first monthly trade surplus in November
after four consecutive deficits, as lower imports countered a
drop in key copper export revenue, central bank data also showed
on Friday.
    The surplus grew to $562 million in November
after a downwardly revised $411 million deficit in October and
$287 million surplus in November 2011, according to central bank
data. The bank had previously reported a $70 million surplus for
October.
    Exports totaled about $6.674 billion in November, while
imports were about $6.112 billion. Both figures were down
compared with October and November 2011.
    "The external situation is affecting us and that is
reflected in exports. The value (of exports) have fallen in some
cases because export prices have dropped, but volumes have as
well," Larrain said.
    Exports are closely monitored in Chile, which is largely
dependent on sales of copper, wood pulp, fruit and salmon.
    Chile accumulated a $2.702 billion trade surplus in the
January to November period, central bank data showed. The
country ended 2011 with a $10.792 billion surplus.
    
    COPPER EXPORT REVENUE DOWN
    Chile's copper export revenue totaled $3.859
billion in November, versus a previously reported $4.440 billion
in October, the central bank said.
    Export revenue from the metal was $3.712 billion in November
of last year. 
    Copper prices rose to their highest level in more
than five weeks in late November, supported by a weak dollar and
growing confidence in the economic outlook for top consumer
China. 
    Chile, which produces roughly a third of the world's copper,
is struggling with stubbornly dwindling ore grades in many of
its aging, tired deposits though new and expanded deposits have
helped increase output this year.

* Rate hold was unanimous decision
    * Cenbank members highlight strong demand, activity
    * Rate seen on hold in coming months, hiked in 2 years

    SANTIAGO, Nov 28 (Reuters) - Chile's central bank only
considered keeping its benchmark  interest rate on hold as an
option in November, when it held it steady at 5.0 percent for a
10th consecutive month, as expected, minutes of the meeting
showed on Wednesday.  
   The rate remains within a neutral range and the five-member 
central bank board unanimously decided to keep the rate steady,
the minutes of the Nov. 13 meeting said.
    Globally, in standard central bank parlance, a neutral
interest rate, in theory, should neither spur nor curb economic
growth, all other factors being equal.
    Rates have stayed on hold since a cut in
January largely because the world's No. 1 copper producer has
shown better-than-expected resilience to slowing demand from top
trade partner China and fallout from the euro zone's crisis.
    "Domestically, all of the board members highlighted the
strength shown by domestic demand and activity," the minutes
said.
    Chile's small, export-dependent economy expanded 5.7 percent
in the third quarter from a year earlier, the bank
reported last week. It grew a
seasonally-adjusted 1.4 percent in the third quarter versus the
second quarter, slowing from an upwardly revised 2.0 percent
expansion in the second quarter from the first quarter.
 

    "Regarding inflation, all the board members agreed that
total and core inflation remained in line with the inflation
target's tolerance range, despite increased dynamism of activity
and demand," minutes added.
     Chile's consumer price index rose by double
what the market expected in October, though inflation in the 12
months to October was 2.9 percent, just below the 3.0 percent
midpoint of the central bank's policy horizon target.
 
    
    RATE HIKE SEEN IN TWO YEARS
    The central bank is seen holding its key interest rate at
5.0 percent again at its monetary policy meeting on Dec. 13, and
it is seen at that level in three and six months, the bank's
fortnightly poll of traders showed separately on Wednesday.
    But traders now see the rate inching up to 5.25 percent in
24 months time. 
    The bank's last poll of traders published earlier this month
saw the rate at 5.0 percent in three and six months. It did 
not, however, see a rate hike on the horizon. 
    On inflation, the expectations in Wednesday's poll were that
consumer prices would fall 0.1 percent in November, according to
the median forecast of 58 traders. Inflation in 12 months is
seen at 2.8 percent, still a whisker below the bank's target.
    Chile's peso currency is seen trading at 480 per
U.S. dollar in seven days and three months, the poll said. The
peso was trading at 481.60 per dollar in early Wednesday trade.