MercoPress. South Atlantic News Agency

Chile increases basic interest rate to 0,75%, working on a two year horizon

The reference rate stood at 0,5% since March 2020 when the Covid 19 virus first appeared in Chile

Chilean Central Bank board members decided unanimously to increase the reference inter-bank interest rate some 25 base points to 0.75%, which represents the first rise in over two and a half years, given the improved economic prospects since the pandemic was triggered.

The reference rate stood at 0,5% since March 2020 when the Covid-19 virus first appeared in Chile. It is also the first increase since January 2019, when it was also readjusted 25 points to 3%.

In its release the central bank said that according to the background of information collected the performance of the Chilean economy is similar to that anticipated in the Monetary Policy Report from June, meaning the gap of activity will continue to close rapidly, boosted by a strong fiscal support and the sustained dynamism of consumers.

“Even in the context of a gradual normalization, monetary policy will continue to accompany the recovery of the economy. Which means that even with one of the most expansive monetary policies, the rate will continue be below its neutral value during all the policy's horizon for the next two years”, pointed out the central bank

The bank added that y-to-y inflation in June was 3,8%, which can be explained by the performance of the different fuels, both referred to prices and to the increase in recent months given its very low comparison base.

Meantime economic activity during May in Chile jumped 18,1%, well beyond forecasts, which means a return to levels previous to the pandemic.