UPDATE 2-Chile cbank starts rate upcycle with 50 bps hike

SANTIAGO, June 15 (Reuters) - Chile's central bank raised its benchmark interest rate by a bigger-than-expected 50 basis points on Tuesday to 1.0 percent, beginning a rate upcycle as the economy recovers from the global crisis and the huge earthquake.

The bank joins regional peers Brazil and Peru, which have already moved to raise rates, after holding its own key rate at an all-time low of 0.5 percent for nearly a year.

It also marks the Chilean central bank's first rate increase in nearly two years.

The central bank said the withdrawal of monetary stimulus would 'continue at a pace that will depend on the evolution of macroeconomic conditions at home and abroad'.

Analysts widely voiced surprise at the size of the increase, which was more aggressive than the 25 basis point rise most market players polled by Reuters had been expecting. For a snap analysis, see

'It means the central bank sees something the markets still don't, possibly a stronger inflationary rebound based on the strong economic recovery due to post-earthquake reconstruction,' said Alfredo Coutino, Latin America director at Moody's Economy.com.

'This gives the impression that the central bank sees signs of economic overheating heading into the second half of the year, which they're anticipating with a 50 basis point increase to lower the economic temperature.'



REGIONAL RATE UPCYCLE

Brazil raised its own Selic rate last week, a second consecutive rise, to try to curb consumer prices and keep Latin America's biggest economy from overheating after it surged at its fastest pace in at least 14 years in the first quarter.



Chile's central bank had been lagging in starting to raise rates after leading the regional pack with an aggressive rate-slashing cycle last year amid the global financial crisis.

Some say Chile's central bank could opt for another 50 basis point increase, particularly if jitters from debt woes in Europe that have rattled markets in recent weeks subside.

'Right now, their base line is probably for another 50. What they say is we will continue to hike, but the pace will depend -- we'll read the situation and act accordingly,' said Alberto Ramos, senior economist at Goldman Sachs in New York.

'There is no pre-commitment that they will continue to do more 50 bps,' he added.

Data released last week showed Chile's economy surged in April as the economy recovers from the ravages of the Feb. 27 quake, reinforcing views for a rate hike, while inflation rose faster than expected in May on higher fuel, transport and food costs.

The quake killed hundreds of people and hammered the forestry, fruit, fishing and wine industries of south-central Chile. Chile's mainstay copper mining industry was spared.

The central bank trimmed its 2010 growth outlook following the quake, and forecasts the economy will grow by between 4.25 to 5.25 percent this year.

(Reporting by Simon Gardner, Alonso Soto, Brad Haynes, Antonio de la Jara, Fabian Cambero; Editing by Sofina Mirza-Reid) Keywords: CHILE RATES/ ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.