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Chile Industrial production June 2020

Chile: Central Bank leaves monetary policy rate at technical minimum and expands unconventional stimulus in June

At its monetary policy meeting on 16 June the board of the Central Bank of Chile (BCCh) left the monetary policy rate unchanged at 0.50%, its lowest point since 2009. The decision, which was unanimous, came in line with analysts’ expectations and included an expansion of the unconventional liquidity measures.

Amid subdued inflation and downbeat economic activity, the Bank resolved to leave the monetary policy rate at its technical minimum, while also expanding its unconventional liquidity measures by an amount equivalent to 10% of GDP. On the one hand, the Bank will deploy a second round of favorable credit lines for commercial banks under its FCIC program of up to USD 16 billion, in order to encourage lending to medium- and small-sized businesses. On the other hand, the Bank unveiled an USD 8 billion asset purchasing program, which analysts estimate will encompass securities beyond banking sector bonds.

Looking ahead, the Bank reiterated its intention to maintain the policy rate at 0.50% for a long period of time and its readiness to intensify monetary stimulus through unconventional tools to further support the economy. Moreover, the USD 23.9 billion credit line provided by the IMF to Chile’s Central Bank provides the monetary authority with sufficient leeway to support financial stability through the duration of the crisis. Meanwhile, policymakers expect inflation to remain muted for an extended period of time on depressed economic activity.

Regarding the Central Bank’s latest decision, analysts at Credicorp Capital noted:

“All-in, the message is in line with a significant deterioration in the domestic and external activity with the balance of risks tilted to the downside depending on the duration of the isolation measures and the global recession. Tomorrow the BCCh will publish its Monetary Policy Report and we expect an important reduction in the forecast of the macro variables with respect to March´s IPoM. In turn, we believe the BCCh to remain at the ‘technical minimum’ level of the monetary policy rate until mid-2022. While it is expected to continue taking the required measures to guarantee the correct functioning of the economy, the payments chain and the effective transmission of the monetary policy, as needed.”

The next monetary policy meeting is scheduled for 14–15 July.

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