Chile’s Secend Central Bank Rate Cut in March and Fifth Reduction Since Mid-2019

April 2, 2020

The Central Bank of Chile Board authorized a 50-basis point reduction of its policy interest rate on March 31 by unanimous vote just two weeks after an emergency meeting that cut such by 75 basis points on the 16th. In the second half of 2019, officials had also engineered cuts of 50 basis ponts in July and September and 25 basis points in October. The last rate hike had been a 25-basis point move in January 2019 to 3.0%, and now the rate stands at just 0.50%, which according to a released statement represents a “technical minimum.”

The global pandemic has significantly worsened the external environment. Although peso depreciation has lifted inflation to an above-target 4%, officials are confident the spike will be temporary. “Medium-term inflationary pressures have dissipated substantially, and the efforts to overcome the sanitary crisis will have major effects on activity and employment, among other variables. Accordingly, the Board estimates that for inflation to converge to the 3% target. Monetary policy needs to remain highly expansionary for an extended period.” Besides the lower interest rate, “the Board decided to extend the program in place for the purchase of banking bonds by US$ 4 billion and eliminate the maturity constraints of the eligible instruments. Thus, the purchase balance outstanding of that program has changed to an amount of up to US$5.5 billion.”

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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