The Central Bank of Chile adopted a neutral bias in August after it dropped the tightening bias that it had adopted in December 2015 after raising rates twice last year by a total of 50 basis points.
Minutes from the bank's board meeting in November showed the board considered cutting its rate by 25 basis points but ultimately decided unanimously to maintain the rate.
Chile's inflation rate rose slightly to 2.9 percent in November from 2.8 percent in October, in line with the central bank's forecast.
While inflation projections at the end of the forecast horizon are near to the bank's taget, it added they are in the lower part of its tolerance range for the coming months. The central bank targets inflation of 3.0 percent within a 2-4 percent tolerance range.
Provisional data for economic activity in the fourth quarter of this year show a weak performance, especially in mining and parts of manufacturing, while demand points to growth that is similar to recent quarters, the bank said.
In the third quarter Chile's Gross Domestic Product grew by 0.6 percent from the second quarter for annual growth of 1.6 percent, the same rate seen in the second quarter.
The central bank noted that the peso had appreciated while long-term interest rates had reversed some of their previous rise.
Chile's peso has been firming since mid-January, reversing some of its decline since the "taper tantrum" of May 2013. The peso was trading at 651 to the U.S. dollar today, up 8.8 percent this year.
The Central Bank of Chile issued the following statement:
"In its monthly monetary policy meeting, the Board of the Central Bank of Chile decided to keep the monetary policy interest rate at 3.5%.
Internationally, long-term interest rates continued to rise in the developed world. Regarding commodities, it is worth noting the increase in the oil price and the persistence of the copper price above its mid-year levels. Activity figures are yet to improve. There outlook is not changing significantly in part because there is no clarity about the effects of potential changes in the economic policies of developed countries yet.
In November, the monthly CPI variation was in line with forecasts, posting an annual variation of 2.9%. Inflation expectations at the end of the projection horizon are near target, although for the coming months they will remain in the lower part of the tolerance range. Provisional data for the fourth-quarter reveal a weak performance particularly in mining and some manufacturing lines. At the same time, demand data points to growth rates similar to recent quarters. The labor market continues to adjust at a gradual pace. Long-term interest rates have undone part of their previous increases and the peso has appreciated.
The Board estimates that, if the recent trends of the economic scenario persist, and so do their implications on the medium-term inflation outlook, it will be necessary to boost the monetary impulse. At the same time, it reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the policy horizon."
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