Central Bank of Chile Leaves Overnight Interest Rate Steady at 0.5%

November 13, 2009

Chile’s rate decision was as forecast.  The benchmark rate has been at 0.5% since a 25-basis point cut on July 9.  It had previously been sliced by 100 bps from an 8.25% peak to 7.25% in January, then 250 bps in February, another 250 bps in March, and 50 bps each in April, May and June.  In all, 775 basis points were lopped off the rate during the first seven months of this year.  Chilean fell 1.4% annualized in 2Q and by 4.5% in the year to mid-2009.  CPI inflation is negative at minus 1.1% in the year to September.

Monetary officials released a new statement also announcing that the maximum allowed term of longer-term lending at 0.5% will be reduced progressively by 30 days each month, starting with a drop to 150 days from 180 days in December and disappearing entirely next May.  The statement promises to retain the 0.5% level “for a prolonged period of time” but provides a heads-up that a rate increase is possible around the middle of next year.  The statement indicates that positive growth resumed in 3Q09 but appears not to have been as strong as officials were expecting.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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