The Central Bank of Chile announced this Wednesday an increase in its benchmark interest rate to 2.75% per year from 1.50%, the highest increase in 20 years, in a context of inflationary pressures.
In the midst of a “marked and systematic” deterioration in financial markets, the monetary authority raised the interest rate 125 basis points to 2.75%, given a “macroeconomic scenario that has increased the risks for the convergence of inflation to (official) goal of 3%, “said a statement from the Central Bank Council, whose five members unanimously decided on this increase.
The increase in the rate, the highest since 2001, comes after a 1.2% increase in the consumer price index (CPI) in September, the highest monthly figure in 13 years, for a cumulative inflation of 4, 4% so far this year and 5.3% in twelve months.
The price increase has been transversal in different items of the family basket such as transport (2.7%), food (2.1%) and clothing and footwear (1.8%), while the price of gasoline reached record levels after adding 35 consecutive weeks on the rise. In addition, the Chilean peso has had “a significant depreciation” against the dollar, which has hit Chileans’ pockets hard, points out the BC.
Faced with this inflationary pressure, “the Council has decided to advance the withdrawal of the monetary stimulus.”
Although the increase in the rate was expected by the market, it was surprising that it exceeded the estimates of increase of between 75 and 100 basis points.
– « Grave panorama » –
Inflation is explained by higher liquidity after three early withdrawals of 10% of the pensions that Congress approved since September 2020 to alleviate the crisis caused by the covid-19 pandemic. Also for the recovery of employment and aid in money from the government to families for the health emergency.
The issuing institute said that the outlook for the coming months has been rising “in a context in which inflation expectations for two years are above the 3% target.”
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