Chile central bank holds interest rate amid fuel price surge

March 24 (Reuters) - Chile's central bank on Tuesday held its benchmark interest rate at 4.5% in a unanimous decision, in line with expectations, as inflation remains within the bank's target range but the war in the Middle East raises oil prices and inflation expectations.

Chile has made substantial success bringing inflation down from its post-Covid highs, with annual headline inflation in the mining nation falling in February to its lowest level in more than six years, at 2.4% - comfortably within the central bank's 2% to 4% target range.

Traders polled by the central bank in February had expected a rate cut of 25 basis points, but the consensus changed after the U.S. and Israel's war on Iran sent global oil prices soaring.

In a statement announcing the rate hold on Tuesday, the central bank said it expects a sharp rise in global fuel prices due to the Middle East conflict will push inflation up to around 4% in the short term. Over time, inflation is expected to ease and return to target by 2027, provided conditions stabilize.

"However, given the magnitude of the shock, the Board will remain particularly attentive to signs of greater transmission and/or persistence of these shocks in inflation," the bank said.

Fuel prices in Chile were set to surge this week after the country's new government on Monday invoked a clause in its fuel stabilization mechanism to rapidly align with surging international prices. In capital Santiago, a price jump of about 30% was expected for gasoline and 60% for diesel.

Chile is one of Latin America's largest oil importers due to a lack of domestic production, leaving it highly exposed to international price movements.

(Reporting by Fabian Cambero, Brendan O'Boyle and Kylie Madry; Writing by Brendan O'Boyle)