Chile’s base rate rose 125 points to 8.25%, the highest since September 2008 — MercoPress

Chile’s base rate rose 125 points to 8.25%, the highest since September 2008

Friday, May 6, 2022 – 09:45 UTC

Recent Inflation Developments and Near-Term Inflation Outlook Exceed March Monetary Policy Report Forecasts

Private estimates fell short in Chile on Thursday when the Central Bank’s monetary policy office announced a base rate hike of 125 points to 8.25%, the highest since September 2008, in an effort to contain sustained high inflation. According to the bank’s president, Rosanna Costa, the decision of the monetary policy office was unanimous.

A survey of financial operators in Santiago had anticipated an increase of 100 basis points, to 8%.

“The recent evolution of inflation and its near-term outlook exceed the forecasts of the March Monetary Policy Report. This situation intensifies the risks of the inflation scenario, so the Council decided to raise the MPR around the upper limit of the key rate corridor of the last MP report. The next monetary policy report will contain a new assessment of the monetary policy trajectory,” the bank’s statement read.

He added that “global inflation has continued to rise and central banks have stepped up the withdrawal of their monetary stimuli. This happened in a scenario of still high commodity and food prices and the lockdowns in China put additional pressure on the recovery of global supply chains. The global growth outlook for this year has been revised down, approaching the values ​​projected in the March Monetary Policy Report. This, amid continued uncertainty over the Russian invasion of Ukraine and signs of concern over activity in China.”

The bank explained that “movements in global financial markets have been driven primarily by risks associated with the speed at which major central banks would withdraw monetary stimulus, particularly the US Federal Reserve. In this context, since the last meeting, long-term interest rates have risen in several economies, stock markets have fallen and the dollar has appreciated globally, all in an environment of heightened financial volatility”.

The Chilean domestic financial market was partially affected by these developments insofar as, during the month of April, the peso/dollar parity depreciated sharply and long-term interest rates (BTP-10) increases. In turn, the IPSA equity index fell while the sovereign risk premium (CDS) rose.

“In the credit market, the performance of credits continues to show moderate dynamism in the various portfolios. This outlook is consistent with the higher cost of credit, the tightening of access conditions and a more cautious attitude on the part of borrowers, as evidenced by the qualitative information compiled in the Business Perceptions Report (IPN) of May”.

Finally, “March inflation was significantly higher than forecast in the latest Monetary Policy Report, pushing the annual change in the CPI to 9.4% (7.6% for the core CPI, without It is worth noting the increase in the prices of foodstuffs – basic and volatile -, fuels and some other specific items. Domestic inflationary pressures have been reinforced by increases in international energy and food prices. , the depreciation of the exchange rate and the persistent problems affecting global supply. Inflation expectations from the surveys – EES and FTS – remain above 3% at the two-year horizon”.

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