(Adds central bank president's comments, background, details)
By Anthony Esposito and Antonio De la Jara
SANTIAGO Dec 19 Chile's central bank flagged
the possibility of future interest rate cuts and revised
downward its forecast for 2017 economic growth and inflation in
its highly anticipated quarterly Monetary Policy Report released
The bank took a more dovish tone as economic growth has
remained stubbornly soft and inflationary pressures have
retreated more quickly than anticipated in recent months.
The bank forecast 2017 gross domestic product growth of
between 1.5 percent and 2.5 percent, versus its previous
forecast of 1.75 percent to 2.75 percent. It said the economy of
the world's top copper producer would expand 1.5 percent in 2016
in what would be the slowest growth since a 2009 recession.
Newly appointed bank president Mario Marcel said growth was
expected to pick up next year because "the economy does not have
imbalances, the mining sector will not repeat the sharp drops
(in activity) of recent years and investment will increase
following three straight years of annual reductions."
In any case, the economic pickup would become more apparent
in the second half of 2017.
The bank also reduced its forecast for annual inflation,
saying it expected it to end 2017 at 2.9 percent, from a
previous view of 3.1 percent.
Inflation is seen remaining on the lower end of the central
bank's 2 percent to 4 percent tolerance range for most of 2017
before returning to the 3 percent target toward the end of the
year, the bank said.
Regarding the benchmark interest rate, the bank said its
base case is similar to that in various market forecasts, which
point to expectations of two 25-basis-point rate cuts over the
two-year policy horizon.
"With that, we assure that monetary policy will continue to
be expansive throughout the policy horizon," the bank said.
Traders polled by the bank last week saw the key interest
rate being cut a quarter of a percentage point to 3.25 percent
in three months and to 3.0 percent in six months.
Board members of the bank mulled cutting the benchmark rate
at the most recent monetary policy meeting on Dec. 13, when the
rate was held at its current 3.5 percent, said Marcel.
At that meeting, the bank adjusted its previously neutral
bias on rates to indicate that monetary stimulus may soon be in
Marcel said the bank adopted the expansive bias on rates
considering recent economic activity and because the drop in
inflation could be more persistent than previously anticipated.
(Editing by Jeffrey Benkoe and Meredith Mazzilli)