SANTIAGO (Reuters) - Chile’s central bankers all agreed to hold their key interest rate steady at 1.75% despite two months of protests that have hit economic growth and fueled uncertainty among investors and consumers, their meeting minutes showed on Thursday.
The bankers said they believed recently announced fiscal stimulus measures coupled with successive rate cuts in recent months would help bolster economic growth for 2020. This month it cut its gross domestic product forecast for next year to 0.5%-1.5% from a previous 2.75%-3.75%. [nC0N28F000]
The slide in the peso, which has hit historic lows in recent week, would help push long-lagging inflation in the South American nation to its target without further stimulus, they added. [nT5N22C01X]
Economic activity in October marked the biggest year-on-year contraction in a decade, it was confirmed earlier this month, as riots over inequality overtook the country. Forecasts for future growth and unemployment are equally dire.
The board agreed in its meeting, two days after the data was released, that it would likely refrain from cutting the rate for several months, maintaining a watching brief instead.
It said that the short-term disruption caused to economic activity by the protests had a knock-on effect on business and consumer confidence, share prices and the peso strength which could extend into the medium term.
The lack of certainty around political, social and economic issues would exacerbate the situation, the board said, adding: “to avoid further adverse effects, new agreements should be reached as soon as possible”, or it would have to revise downwards its forecast for recovered growth in 2021 as well.
“If this is not achieved, the economy could remain weakened for several years,” the board said.
Chilean lawmakers are at present deliberating plans to draw up a new constitution to replace one introduced during the military dictatorship of Augusto Pinochet, and a range of social spending plans proposed by the center-right government of President Sebastian Pinera. [nL2N27V0LL]
Reporting by Aislinn Laing; Editing by Hugh Lawson