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Chile's central bank pondered rate cut possibility

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Chile's central bank pondered rate cut possibility

Members of the Chilean central bank's monetary policy board considered lowering the benchmark interest rate earlier this month, amid weak economic growth in the first quarter of 2019.

During Banco Central de Chile's May 9 monetary policy meeting, the board decided to maintain the rate at 3% as inflation expectations remained on target. However, several members broached the possibility of an interest rate cut due to wider-than-expected economic output gaps, as data showed lower inflation under a new consumer price index computation.

Still, a lower policy rate would have to be justified by a larger gap difference, lower economic dynamism, deteriorating external conditions or a lower neutral interest rate, the board said.

Except for risks brought about by trade tensions between the U.S. and China, the board observed little change in the external environment, and it still expects controlled inflation due to sluggish growth from major economies. Although Chile's first-quarter results will likely weigh on its full-year growth projections, the board still believes that the local economy will see increased dynamism to enable the closing of the output gap.

All board members agreed that updated parameters by June would provide new data to assess the possibility of an interest rate reduction.

Chile's economy grew 1.6% in the first quarter, down from 4.7% a year ago, driven by lower mining activity.