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UPDATE 1-Chile cenbank mulled bigger rate cut as slowdown deepens
September 1, 2014 / 2:12 PM / 3 years ago

UPDATE 1-Chile cenbank mulled bigger rate cut as slowdown deepens

(Recasts, adds central bank’s comments, background details)

SANTIAGO, Sept 1 (Reuters) - Chile’s central bank considered cutting a key interest rate by 50 basis points in August for the first time in its current easing cycle, underscoring growing concerns about a quickly stagnating economy, minutes of its last meeting showed on Monday.

The bank, which wound up cutting the rate by 25 basis points to 3.50 percent on Aug. 14, has gradually reduced the key rate from 5.0 percent in October as waning domestic consumption and cooling investment have weighed on economic growth.

It was the first time the bank considered a 50-basis-point cut in the current expansive monetary policy cycle. The last time it cut by that amount was in June 2009, when the economy of Chile, the world’s top copper producer, was mired in a recession.

“A reduction of 50 basis points could be justified in (the benefit) of speeding up the process of reducing the monetary policy rate, facing a sharper slowdown. Still, such a reduction could take the market by surprise,” the central bank minutes said.

According to the bank, cutting the rate by more than the market expected “could not be ruled out,” but it added that would call for a detailed explanation of the macroeconomic outlook, something the bank will do on Wednesday, when it publishes its quarterly Monetary Policy Report.

“(Concerning) the domestic economy, all five board members mentioned output and demand figures as the biggest surprise of the month, confirming the presence of a deeper and lengthier slowdown than had been forecast,” the minutes said.

Minutes showed the actual decision was unanimous and that the bank also weighed the option of holding the rate steady.

For the full report, please see: here (Reporting by Anthony Esposito; Editing by W Simon and J Benkoe)

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