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Financials

Chile central bank unanimous in August decision to double interest rate, minutes show

SANTIAGO, Sept 15 (Reuters) - Chile’s central bankers unanimously agreed to double the benchmark interest rate from 0.75% to 1.5% last month given the economy’s unexpectedly rapid recovery from the COVID-19-related recession and high July inflation, according to minutes from the meeting.

All members of the board agreed there was a need to withdraw stimulus since “its continuation longer than was necessary was causing problems and macroeconomic imbalances which should be avoided,” according to the minutes.

The bank said the main question was how quickly to withdraw the stimulus. It said that up until that meeting, the consensus had been to withdraw it gradually and partially but that with high levels of public spending, the peso depreciating and rolling 12-month inflation hitting 4.5% in July, its the highest level since March 2016, they reconsidered.

The bankers considered that the present rate was “not commensurate” with an economy that was growing in double digits and in which the economic activity gap had already been closed in most sectors.

They considered a 50 point increase to avoid surprising the market, which had predicted such, but several members made the point that a 75 point increase was “fully consistent with a scenario where inflation and projected growth were also higher than the average analyst expected.”

“It was considered that the stimuli that weighed on the economy were already very significant, that their impact was greater than had been anticipated,” the minute said.

“All this gave rise to a scenario where the convergence of inflation to the (3% within two years) goal was close to the policy horizon and where upside risk scenarios dominated.” (Reporting by Aislinn Laing Editing by Chizu Nomiyama)

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