Chile will cut its 2014 growth forecast as metal prices drop and investments in the mining industry slow, central bank President Rodrigo Vergara said.
Policy makers currently predict the world’s biggest copper producer will expand from 3.75 percent to 4.75 percent this year. Analysts surveyed by Bloomberg expect the economy to grow 3.8 percent, its slowest pace in five years.
The central bank reduced the benchmark interest rate by a quarter-point to 4 percent this month. This was the fourth time in six months borrowing costs were trimmed to fuel growth. Chile’s economy expanded 1.4 percent in January from the year earlier, the slowest pace since the aftermath of a devastating earthquake in February 2010.
“Our economy has slowed and despite a sharp currency depreciation inflation expectations have remained in line with target, allowing us” to pursue a more expansionary monetary policy, Vergara said at an event on the sidelines of the Inter-American Development Bank annual meeting in the Brazilian northeastern resort of Costa do Sauipe. “It should come as no surprise that our growth outlook for this year is corrected downward from December.”
While economic growth is slowing, inflation is accelerating. Consumer prices increased 3.2 percent in February from the year earlier, the fastest pace in 22 months, as a decline in the peso pushed up import costs and rents jumped. The central bank targets inflation of 2 percent to 4 percent.
The central bank said in the minutes of their March meeting that faster inflation coupled with slower growth calls for caution. While the bank can’t dismiss the need for more expansionary policy, it may need more time to evaluate the impact of the rate cuts and other events on the outlook for inflation, the bank said in the minutes released March 28.