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Chile’s central bank will probably keep its benchmark interest rate at a record low for a second straight month as policy makers wait for signs that an economic recovery has taken hold.

Bank President Jose De Gregorio and the rest of the five- member policy committee will maintain the rate at 0.5 percent, according to all 16 economists surveyed by Bloomberg. The bank will announce its decision at about 6 p.m. New York time today.

De Gregorio will leave the monetary stimulus in place until the end of the year as policy makers gauge how fast economic growth will return, said Rodrigo Aravena, an economist at Banchile Inversiones in Santiago. De Gregorio has room to hold borrowing costs at a minimum without concern about fanning inflation, Aravena said.

“It is very unlikely we’ll see rate rises before the second quarter of 2010,” said Aravena, who sits on a panel that provides the government with economic growth estimates. “Even though the economy is recovering there is still a wide output gap.”

The output gap measures the breach between an economy’s potential growth rate and its current pace of growth.

Chilean consumer prices fell 1 percent in August from a year earlier, the National Statistics Institute said today, the steepest decline since 1939. The drop in prices, led by an 18 percent fall in the cost of electricity, exceeded the median estimate of 0.8 percent in a Bloomberg survey of 13 economists.

Economic activity shrank 2.7 percent in July, the central bank said yesterday.

Forecast for Growth

Analysts expect the business environment will improve. A committee of 16 economists organized by the government estimated this month that Chile’s gross domestic product would expand an average of 4.2 percent annually in the next five years.

Consumer prices will probably fall 0.7 percent this year, according to the median estimate of 29 economists in a central bank survey on Aug. 7.

Chile’s central bank has lowered borrowing costs by 7.75 percentage points this year, more than any other major central bank. De Gregorio lifted the rate to its highest in a decade last year as inflation rose to 9.9 percent, the fastest pace of price increases in 14 years.

The central bank is offering loans to banks at the overnight rate in maturities as long as 180 days as it seeks to cheapen funding for lenders, leading to lower interest loans for companies and individuals. The six-month loans imply the bank will leave the rate unchanged for at least that long.

Extending Maturities

Policy makers mulled extending the maturity of the facility at their last meeting on Aug payday loans with no fax. 13 before deciding to leave it unchanged, according to minutes published on Aug. 28.

“The minutes and statement read on the hawkish side,” said Rafael de la Fuente, chief Latin American economist at BNP Paribas SA in New York. “They don’t seem to be in any hurry to introduce more monetary easing. The central bank seems comfortable where they are. They’re on hold.”

Chile’s GDP contracted 4.5 percent in the second quarter from a year earlier, the most in two decades, after the global economic slowdown lowered prices for copper exports and a salmon virus crippled fish farms. The median forecast of 29 economists in the central bank survey on Aug. 7 was that the economy would shrink 1.5 percent this year. It shrank 3.4 percent in the first seven months.

The central bank is due to publish a new survey Sept. 10 and its own updated economic forecasts Sept. 15. The bank said in May that the economy may shrink as much as 0.5 percent this year or grow by 0.5 percent. In July, the bank’s economists said in a report to policy makers that the economy was slowing faster than they had expected.

Copper Prices

The economy may be beginning to expand after President Michelle Bachelet earmarked more than $4 billion for tax breaks and subsidies. Chile is also benefiting from the increase in the price of copper, which doubled from the beginning of the year to $2.85 per pound on demand from China.

Government programs alone may have cut 1.5 percentage points from the unemployment rate, Finance Minister Andres Velasco said Sept. 4.

The central bank’s rate cuts and government incentives for homebuyers have also helped the Chilean building industry, Velasco said. Government handouts to poorer families and unemployment insurance have boosted consumer spending, he said.

“Consumption has started to recover pretty quickly, and that has something to do with the large and opportune cuts in interest rates,” Velasco said.

Supermarket sales rose 7.2 percent in July from a year earlier and retail sales increased year-on-year for the first time in six months, the National Statistics Institute said.

The worst of the crisis has passed, Bachelet told Chileans in a nationally televised speech Sept. 1. “There are evident signs of recovery,” she said.

Chile’s currency rose 0.1 percent to 552.40 pesos per dollar as of 1:24 p.m. in New York today.

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