UPDATE 1-Chile market split on rate decision: cbank report

* Cenbank sees market divided over rate hike vs hold

* Long-term rates and inflation outlook up on intervention
(Updates with currency intervention, Reuters poll, details)

SANTIAGO, Jan 12 (BestGrowthStock) – Chile’s market is split over
whether the central bank will hold steady or raise its key
interest rate on Thursday but agrees rates will trend higher in
coming months, the bank said in a report on Wednesday.

The bank’s board considered temporarily pausing rate
increases last month, meeting minutes showed, but opted for a
seventh consecutive rate hike, in part citing market
expectations of a rate increase.

Two central bank polls released this week showed a median
forecast of a 25 basis point increase, which would bring the
benchmark rate to 3.5 percent at Thursday’s rate-setting

The report to bank board members noted rising market
expectations for long-term interest rates and inflation this
year in the wake of the bank’s $12 billion currency
intervention, which began sapping peso strength last week.

The bank’s report also noted that economic activity and
consumer prices have risen faster than expected in recent
months — factors bolstering forecasts of an eighth straight
rate hike to keep the bank ahead of inflationary pressures.

The currency intervention is seen increasing the effective
cost of imports, which has raised inflation views for 2011, the
latest bank poll of analysts showed on Tuesday.

Other analysts see the central bank complementing its
intervention with a temporary pause in the monetary tightening
cycle after the bank board weighed holding its benchmark rate
steady at its meeting in December. [ID:nN03172599]

A Reuters poll conducted on Friday confirmed that market
opinion is closely divided, with poll respondents and interest
rate futures evenly split between a fresh rate increase and a
temporary pause. [ID:nN11108678]

Successive rate hikes lured foreign investment into local
financial markets, one factor that helped propel the peso up 17
percent in the second half of 2010.

Chilean Central Bank President Jose De Gregorio said on
Monday the bank had room to move interest rates as needed amid
the intervention. [ID:nN10272851]
(Reporting by Brad Haynes and Alonso Soto; Editing by Kenneth