UPDATE 1-Chile economy to grow at full capacity – cenbank

* Bank chief says policymakers working to tame inflation

* Says peso strength reflects weak dollar, copper prices
(Adds quotes from De Gregorio and details)

SANTIAGO, April 7 (Reuters) – Chile’s economy will grow
close to its full capacity this year, the central bank’s
president said on Thursday, heralding a strong economic growth
reading for March.

“According to our base outlook, the economy is going to grow
at a rate very close to full capacity throughout the year, with
neither an excessive use of capacity nor unused capacity,”
Central Bank President Jose De Gregorio told reporters.

On Monday, the central bank expressed an upward bias on its
2011 economic expansion forecast of between 5.5 percent and 6.5
percent. [ID:nN04237988]

The following day, the central bank’s IMACEC economic
activity indicator gauge for February showed year-on-year
expansion of 7.2 percent [ID:nN05100042].

De Gregorio said on Thursday March’s IMACEC figure could be
significantly higher, partly due to the low base of March 2010,
a month of economic upheaval following the 8.8-magnitude
earthquake a few days earlier on Feb. 27.

Reconstruction efforts have boosted growth in recent months
and February’s economic expansion far outpaced market

That has stoked expectations for bank policymakers to add
another 50 basis points to the country’s benchmark lending rate
this week as they focus on dampening inflation boosted by
global oil prices.

The key interest rate currently stands at 4.0 percent
(CLINTR=ECI: Quote, Profile, Research) and markets expect it to continue rising to a
neutral rate near 6 percent over the coming year.

“There’s no reason to make a significant change to the
long-term neutral rate, but there is more uncertainty about its
levels,” De Gregorio said, adding that the bank was taking
steps to control inflationary pressures.

He added that consumer debt and spending were running at
normal levels and that the peso’s (CLP=CL: Quote, Profile, Research) appreciation
reflected sustained dollar weakness and rising prices for its
key copper exports.
( Reporting by Moises Avila and Maria Jose Latorre, Editing by
W Simon )
([email protected]; +54 11 4318 0655; Reuters
Messaging: [email protected]))

UPDATE 1-Chile economy to grow at full capacity – cenbank