×

UPDATE 2-Chile's central bank raises 2018 growth, inflation forecasts

(Adds comments from central bank president, political context) SANTIAGO, June 14 (Reuters) - Chile's central bank on Thursday revised upward its forecast for full-year 2018 growth amid an increase in investment and consumption that it said would spur inflation toward the bank's target of 3.0 percent. In a presentation before senators in Congress, Central Bank President Mario Marcel said he expected GDP growth in the South American country of between 3.25 percent to 4.0 percent for 2018, up slightly from a previous forecast of 3.0 percent to 4.0 percent. "More than a result, this is good start to a more favorable economic cycle ... it is important that the recovery of investment deepens, and that the job market strengthens," Marcel told lawmakers. The increase in optimism in the world's top copper producer marks a sharp turnaround from the sluggish economy of the past several years, as investment in mining and related sectors wallowed alongside low global prices for the red metal. Economic growth slumped as low as 1.5 percent in 2017. The bank boosted its forecast for domestic demand to 4.1 percent, from 4.0 percent previously, and predicted an increase in investment of 4.5 percent this year. Consumption would rise 3.6 percent, the bank said. President Sebastian Pinera took office in early March on promises to combat economic "stagnation" and jump-start investment. "Investment will drive the economy these next three years," Economy Minister Jose Valente said following the release on Thursday of the bank's quarterly report on monetary policy. The brighter investment outlook also prompted the central bank to hike its inflation forecast to 2.8 percent for 2018, from 2.3 percent previously, reducing the risk of setbacks as inflation gradually edges toward the bank's target rate of 3.0 percent in 2019. The bank said the forecast pointed to a base case scenario of maintaining monetary stimulus at or near current levels in the short term. "The probability of needing a more expansive interest rate has been reduced," Marcel said. Chile produces approximately one-third of the world's copper and its economy closely tracks global prices of the red metal, which have spiked by more than 50 percent since touching a nine-year low in 2016. The bank said it had also raised its forecast for the price of copper in 2018 to $3.10 per pound from $3.05 previously.

Forecast Previous Forecast for 2018 2018 forecast for 2019 GDP growth (pct) 3.25-4.0 3.0-4.0 3.25-4.25 Inflation (pct) 2.8 2.3 3.0 Domestic demand 4.1 4.0 3.9

(pct)

Copper price (in $3.10 $3.05 $2.95

dollars)

(Reporting by Dave Sherwood; editing by Bernadette Baum, G Crosse)