MercoPress. South Atlantic News Agency

Chile's Central Bank lowers interest rate to 9.5%

The dollar has strengthened, long-term rates have increased and stock markets have fallen, the Chilean monetary authority said

Chile's Central Bank Council agreed unanimously Tuesday to lower the basic interest rate from 10.25 to 9.5% given the reduction in global inflation, it was reported in Santiago.

The institution also said in a statement that developed economies anticipate a restrictive monetary policy for a long period. However, several emerging economies have already started a cycle of cuts, the Council also explained while admitting that the monetary policy outlook differed across countries.“

The Central Bank also pointed out that world growth prospects for 2023 and 2024 remained weak. Hence, the external impulse the Chilean economy will receive will be limited.

The Bank also acknowledged that global financial markets are currently less willing to take risks, given events such as the downgrade of the U.S. sovereign debt rating and uncertainty about economic performance and the pace of global disinflation.

In this scenario, ”the dollar has strengthened, long-term rates have increased and stock markets have fallen,“ the Chilean monetary authority also said as the Chilean peso depreciated due to changes in the interest rate differential with foreign currencies and an increased risk aversion in the international market. At the same time, long-term interest rates have experienced limited increases, while short-term rates have continued to decrease and bank credit remains limited.

However, economic activity evolved in line with expectations in the second quarter, with a ”more positive” year in July, although mainly associated with transitory factors.

Chile's monetary authority cut the rate for the first time last July after it had stagnated at 11.25% in December of the previous year following eleven consecutive hikes.

The interest rate is used to halt inflation levels by cutting monetary stimulus. Its increase means that it will be more expensive to get into debt, in addition to reducing the growth of some sectors such as real estate, hit by rising inflation.

(Source: Xinhua)