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Chile Monetary Policy March 2020

Chile: Central Bank slashes rate to its lowest point in nearly a decade in March as Covid-19 bites

At a special meeting on 16 March, the board of the Central Bank of Chile (BCCh) slashed the monetary policy rate from 1.75% to 1.00%, its lowest point since June 2010, as it seeks to protect the economy from the financial turmoil prompted by the Covid-19 pandemic. Three out of five board member backed the decision, while the remaining two favored a softer 50-basis-point cut.

The sharp cut was accompanied by additional liquidity measures that aim to mitigate the impact of the Covid-19 pandemic. These measures include loan flexibility plans and accepting corporate and bank bonds as eligible collateral for liquidity operations in pesos. Lastly, the foreign currency sale program—introduced last November to stabilize the currency following October’s protests and which was slated to finish on May 2020—was extended until 9 January 2021.

Looking ahead, the Bank expects these measures will allow the economy to adjust to the current scenario. Although the possibility of further easing was not explicitly mentioned, the statement highlighted that future changes in monetary policy will depend on the evolution of the current backdrop, and its effects on inflation and on financial markets.

The next monetary policy meeting is scheduled for 31 March.

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