September 13, 2012 / 2:41 PM / 5 years ago

Chile central bank seen holding key rate steady at 5 pct

* Bank juggling firm local growth, external threats

* Market sees rate held at 5 pct in near future

* Chile slowdown so far softer than expected

By Anthony Esposito

SANTIAGO, Sept 13 (Reuters) - Chile's central bank is seen holding its key interest rate steady at 5.0 percent for an eighth straight month later Thursday, as healthy economic growth and demand at home counterbalance an unwelcome global backdrop.

Chile, the world's No. 1 copper producer, has been preparing for a slowdown in global demand, especially from China, its main trade partner and top metals consumer, but its small, export-dependent economy has fared better than expected.

The central bank, in its much anticipated quarterly Monetary Policy Report last week, said the key rate is within a range considered neutral, suggesting it would maintain a wait-and-see stance.

A neutral interest rate, in theory, should neither spur nor curb economic growth - all other factors being equal.

The bank is due to announce a decision on the key rate on Thursday at 6 p.m local time (2100 GMT).

Two central bank polls this week showed traders and analysts expect the rate to be at 5.0 percent in coming months.

"We expect the central bank to remain on hold and to preserve a broadly neutral stance in the near term. Such a stance is justified by the still very buoyant domestic demand conditions and the latent risks to the domestic real business cycle ... posed by the risky and uncertain external global backdrop," Goldman Sachs economist Alberto Ramos said in a note to clients.

Traders polled by the bank in August predicted the rate would be at 4.75 percent within six months, but have since nixed bets on a cut as domestic economic data remains solid.

Chilean economic activity grew 5.5 percent on the year in the second quarter, boosted by domestic demand, which jumped 7.1 percent.

Inflationary pressures, meanwhile, have eased, with inflation in the 12 months to August at 2.6 percent - just below the central bank's 3 percent policy target.

Lower export revenue, which prompted Chile in August to post its largest trade gap since the height of the global financial crisis, has to date been one of the most salient indications of decelerating global demand.

Even so, finance minister Felipe Larrain said on Tuesday Chile's government isn't "too concerned" about any effect on the current account and expectations for a deceleration of the local economy.

Elsewhere in the region, Brazil's central bank signaled it was wrapping up a year-long policy easing cycle, but left the door open for a final rate cut as it sees inflation remaining under control, according to minutes released last week from its most recent monetary policy meeting.

Colombia's central bank lowered its benchmark interest rate for the second consecutive month in August in a widely expected move to bolster the economy as the global slowdown crimps overseas sales and weak sentiment slows consumer spending.

Peru's central bank held its benchmark interest rate steady at 4.25 percent for the 16th straight month last week, betting inflation would cool to within its target range by the end of the year.

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