November 3, 2015 / 1:28 PM / 2 years ago

UPDATE 1-Chile cenbank says 12-month inflation could temporarily go below 4 pct

(Adds Vergara’s comments, background details)

SANTIAGO, Nov 3 (Reuters) - In the short term, 12-month inflation in Chile could temporarily drop below 4 percent, the top end of the central bank’s tolerance range, but would then again rise past that level, bank president Rodrigo Vergara said on Tuesday.

Vergara reiterated that bringing inflation in Chile to the midpoint of the central bank’s 2 percent to 4 percent target range will require reducing monetary stimulus, though he underscored that the interest rate will still remain expansive.

“It is possible that inflation will temporarily return to within the target range in the upcoming inflation data, however we expect this to be temporary and for it to rise again (past the tolerance range) for many more months, at least until the middle of next year,” said Vergara.

The central bank raised the benchmark interest rate by 25 basis points to 3.25 percent on Oct. 15 and said further hikes were likely as it tries to rein in stubbornly high inflation.

Vergara has indicated that one or two more hikes in the monetary policy rate are likely over the next 10 months through September next year.

A recent toilet-paper collusion scandal was negative for the recovery of consumer and business sentiment, both key indicators for Chile’s economic wellbeing, Vergara added.

Chile’s competition regulator said last week that Chilean forestry company CMPC had colluded with PISA, purchased by Swedish-owned SCA in 2012, for at least a decade to control nearly 90 percent of the nation’s toilet paper and tissue sales and kept prices higher.

“The news we had last week about collusion are very negative for (sentiment) ... one cannot but condemn and repudiate this,” Vergara said at a seminar in capital Santiago.

Government officials held an emergency meeting on Monday to discuss a crackdown on anti-competitive practices after regulators identified the collusion. (Reporting by Fabian Cambero; Writing by Anthony Esposito; Editing by Chizu Nomiyama)

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