Chile's central bank could cut its target lending rate to a new record low in coming months, Central Bank President Jose De Gregorio said on Wednesday, saying medium-term inflationary pressures had eased sharply.
Chile's central bank cut its benchmark interest rate by 50 basis points to 1.75 percent as expected this month, following 600 basis points worth of cuts in the first quarter in an effort to boost growth amid the global financial crisis. The target overnight lending rate now equals the target rate's record low hit in 2004.
"It is possible there will be new reductions in coming months," De Gregorio said in a presentation posted on the bank's website www.bcentral.cl. The bank now expects inflation could hit its target of 3 percent by mid-year. "More importantly, inflationary pressures in the medium term have fallen significantly enabling a greater expansion of monetary policy," he added.
At its last meeting on April 9, the central bank monetary policy board considered cutting its benchmark interest rate within a range of 25 to 75 basis points but opted for a 50 basis point cut to signal a basis towards monetary easing, minutes of the meeting showed on Monday.
Chile's IMACEC economic activity index fell 3.9 percent in February compared with a year earlier, its biggest fall since May 1999 and the fourth consecutive monthly drop amid the global economic slowdown, central bank data showed this month. De Gregorio said last week he expected Chile's economic activity index would likely show negative annual figures for several more months. Analysts now widely expect Chile's economy to shrink about 0.5 percent in 2009 as the global economic slowdown chokes activity.
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