December 5, 2018 / 1:52 PM / a year ago

UPDATE 1-Chilean cenbank sees gradual interest rate rises through 2020

(Adds quotes from Ipom report, additional statistics on consumption, domestic demand and interest rate)

By Antonio De la Jara

SANTIAGO, Dec 5 (Reuters) - Chile’s economy will grow by 3.25 percent to 4.25 percent in 2019, boosted by a rebound in investment, Chile’s central bank said on Wednesday, maintaining its previous forecast while calling for a gradual easing of monetary stimulus through 2020.

The bank expects GDP growth at 4.0 percent in 2018, at the lower end of a previous estimate of 4 percent to 4.5 percent, after economic activity stalled unexpectedly in the third quarter, it said in its quarterly Ipom policy report.

“Although (economic growth) took a pause in the third quarter, a result of factors that impacted mining and industry, we expect it to recover in the fourth quarter,” the report said.

Chile’s economic activity index, which encompasses about 90 percent of the economy tallied in gross domestic product figures, rose 4.2 percent over the previous year in October, a hint of tailwinds to come, the bank said in a separate report on Wednesday.

The central bank took an optimistic view of growth in 2019. It said domestic demand would increase by 3.8 percent, boosted by investment and consumption, which were expected to increase by 6 percent and 3.3 percent, respectively.

The sharply falling price of fuel has led the bank to slightly reduce its prediction for inflation to 2.7 percent in 2018. Inflation is expected to increase to 2.9 percent in 2019 amid increasing consumption, the bank said.

Taken together, the positive outlook is likely to prompt a gradual increase in interest rates through 2020, policymakers said.

“Monetary policy will continue to be expansive ... the base case scenario suggests the interest rate will continue to increase in the coming months and that in the first half of 2020 it will settle between 4 and 4.5 percent,” the bank said in its Ipom report. (Reporting by Antonio De la Jara; Writing by Dave Sherwood; Editing by Toby Chopra and Jeffrey Benkoe)

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