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Friday, February 8, 2008

Chile Leaves Lending Rate Unchanged at 6.25%

Chile's central bank kept its lending rate unchanged yesterday after inflation eased from the fastest pace in a decade. The bank also signaled that it's prepared to act again in the future if need be to ensure price increases slow.

Policy makers left the benchmark rate at 6.25 percent after two consecutive increases at previous meetings. Stable consumer prices in January and slower economic growth in December left the bank room for a pause today. The central bank last month lifted its benchmark rate to a six-year high after annual inflation in December accelerated to the fastest since 1996.

The bank said further rate increases may be needed to ensure inflation slows to the target of 2 percent-to-4 percent. The annual inflation rate may climb in coming months before it starts to ease, the bank said.

Falling food, clothing and transportation costs helped trim the annual inflation rate in January to 7.5 percent from 7.8 percent in December. Growth in South America's fourth- biggest economy slowed in December as interest-rate increases totaling 1.25 percentage point since July and unsettled global conditions began to bite.

Chilean economists have lowered their 2008 forecasts for consumer prices and economic growth, according to a central bank survey released today. The annual inflation rate will end 2008 at 3.8 percent, compared with the 4 percent forecast in January's survey. Chile's economy will expand 4.6 percent in 2008, compared with the 4.9 percent forecast in last month's survey, according to the report.

Chile, the world's biggest copper producer and exporter, on Jan. 14 announced a $200 million recapitalization of the country's fuel price-stabilization fund to cut consumers' payouts at the pump. The measure led to a 1 percent drop in fuel prices last month.

At the same time, restrictions on electricity production have slowed the economy. Output has been hurt by natural-gas shortages triggered by cutbacks from Argentina and low reservoir levels reducing hydroelectric generation. Chile will cut electricity voltage 10 percent and extend daylight savings until the end of March in a bid to avoid power rationing, Energy Minister Marcelo Tokman said today.

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