July 9, 2020

The Central Bank of Chile maintains the interest rate at 1.75% despite the economic downturn

The Central Bank of Chile agreed on Wednesday to maintain the monetary policy interest rate at 1.75%, despite a 3.4% year-on-year collapse suffered by the country's economy last October due to the effects of social protests , who are already walking towards their seventh week.

The decision was adopted by the unanimity of all the members of the Council of the Chilean issuer, which through a statement informed that it does not envision in the coming months changes in the interest rate, which had been reduced by 25 points to 1.75% current on October 23 as a measure to boost the economy.

"In a context of greater fiscal momentum and foreign exchange intervention, the Council expects that the monetary policy rate will remain at its current level over the next few months," the statement said.

In addition, the issuer reaffirmed its commitment to "conduct monetary policy with flexibility" so that projected inflation is 3% over the two-year horizon.

In this regard, he noted that in October annual inflation was 2.5% and that market expectations point to closing the year "at close values ​​or something above 3%, accounting for the strong depreciation of the peso" and that "to two years term, the different measures of expectations are located in 3%".


The analysis of the Central Bank reflected that the social crisis has generated "significant changes" in various areas of the Chilean economy and financial markets, "giving way to an increase in uncertainty (…), a greater perception of country risk, a deterioration of stock market indicators and increases in fixed income rates and corporate spreads. "

Credit conditions have also been affected and there is a lower demand for credit in some sectors and a more restrictive offer for individuals and companies, the issuer said.

The entity also realized that growth expectations for this year and next have deteriorated, being reduced by the Government to 1.4% for 2019, which is up to 0.8 points less than the last adjustment, between 1 and 1.5% by 2020, compared to 2.3% calculated.

In addition, he noted that "the labor market already shows signs of deterioration."

Regarding the foreign exchange market, he said that the peso had a significant depreciation that "occurred with a rapidity and succession of movements in the same direction that generated a volatility that was estimated to be excessive", so he was motivated to intervene by putting 20,000 million dollars for sale


In the external scenario, the Central Bank reported that "developments around the trade war between China and the United States continue to influence the behavior of global activity and financial markets," to which is added the impact of idiosyncratic factors. in the worst performance in Latin America.

In this regard, he indicated that "activity and trade have been in line with expectations" with a global monetary policy that has remained expansive and stock indexes have increased in the main economies.

The Chilean social crisis for a more equitable economic model that began on October 18 and to date has cost the lives of at least 23 people.

In addition to demonstrating peace, the phenomenon has also led to serious episodes of violence, such as looting, fire and destruction of furniture, which have affected trade and industry.

. (tagsToTranslate) Banco (t) Central (t) Chile (t) maintains (t) economic

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