Chile central bank sees negative growth data for months - Reuters

Reuters, Mon Apr 20, 2009 5:11pm BST - By Antonio de la Jara

SANTIAGO, April 20 (Reuters) - Chile's economic activity index will likely show negative annual figures for several more months and benchmark interest rates will likely be cut further, Central Bank President Jose De Gregorio said on Monday.

Chile's economy in February contracted 3.9 percent from a year earlier amid a global financial crisis, according to data for the IMACEC index, the worst showing in a decade and a fourth consecutive monthly contraction.

"In annual terms ... data is showing, and will probably show for several more months, negative annual variations," De Gregorio said in a presentation that was also posted on the bank's Website, www.bcentral.cl.

"With seasonal effects removed, the IMACEC data of the past couple of months -- January and February of this year -- shows the level of activity has stopped falling, at least with the same force as it did at the end of 2008," he added.

Analysts now forecast Chile's economy will shrink 0.5 percent in 2009, revising last month's 0.2 percent full-year growth forecast downward, as the global economic slowdown chokes activity, a central bank poll showed this month.

"Even though the IMACEC may not have continued to fall in seasonally-adjusted terms in January-February, our forecasts point to a new fall in April-May," the Inversiones Security brokerage said in a research note.

De Gregorio said further reductions in the bank's benchmark lending rate, which the bank aggressively cut in the first four months of the year, would likely follow.

Chile's central bank cut its target overnight lending rate by 50 basis points to 1.75 percent as expected this month, following a series of deep cuts in the first quarter in an effort to boost growth amid the global financial crisis.

The target overnight lending rate now equals the record low hit in 2004. In the first quarter the bank had slashed the rate by six percentage points, a record amount for a quarter.

"We believe that further reductions may be necessary to ensure we fulfill the inflation target," De Gregorio added.

Annual inflation slowed to 5 percent in the 12 months through March from 5.5 percent for the year through February, and was expected to fall in coming quarters. The bank is targeting annual inflation of 3 percent.

"Today, it is possible to forecast that inflation will continue to show lower readings in coming months," De Gregorio said. (With reporting by Rodrigo Martinez; Writing by Simon Gardner' Editing by Walker Simon)