June 18, 2020 / 11:31 PM / a month ago

Chile seeks law allowing central bank to buy national Treasury debt

SANTIAGO, June 18 (Reuters) - Chile’s government moved on Thursday to enable the central bank to buy bonds issued by the country’s treasury in the secondary market, which could give it added firepower to help offset the COVID-19 crisis.

The finance ministry, citing the economic impact of the coronavirus pandemic in a statement, said the central bank would be allowed to buy the state-issued debt in “exceptional circumstances” under newly drafted legislation.

The move would be a shift for Chile, where law currently prohibits the central bank from acquiring debt issued by any state organization, or from financing public spending through direct or indirect credit.

Chile, the world’s top copper producer, has been hit hard by the pandemic. The central bank forecast this week that the economy would contract between 5.5% and 7.5% this year, which would be the deepest decline in 35 years.

The central bank’s president, Mario Marcel, had said on Wednesday that the move to give it license to buy government debt was urgently needed.

The finance ministry, in its statement, said it would leave the country “better prepared to face delicate economic situations, such as those that the world is undergoing as a result of the coronavirus pandemic.”

The statement added that “in no case may debt securities issued by the Treasury, state agencies or companies be acquired in the primary market.”

Chile’s central bank held the benchmark interest rate at its minimum level of 0.5% this week. (Reporting by Natalia Ramos Writing by Adam Jourdan; Editing by Tom Brown)

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