Chilean central bank says unconventional measures to fight COVID-19 possible

Chilean central bank says unconventional measures to fight COVID-19 possible

Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Chile Latin America Coronavirus

Chile’s central bank said on Wednesday it will resort to non-conventional methods to prop up the economy should interest rates cuts and other traditional tools fail to stop the economy from slowing down as a result of the novel coronavirus, COVID-19. 

On Tuesday, the bank cut interest rates for a second time in less than a month, lowering the benchmark rate by 50 basis points to 0.5%. On March 16, the central bank cut the benchmark interest rate by 75 basis points to 1%. 

“The situation we are confronting is different from any other period of economic contraction that we can remember,” said Mario Marcel, president of Chile’s central bank on Wednesday during the presentation to congress of March’s monetary policy report. 

“There are other scenarios where the performance of the economy would escape the range of projections,” he said, adding: “In this type of situation, it will be necessary to use instruments that go beyond habitual monetary policy, giving priority to considerations of financial stability.” 

The central bank will use all of its “expansive power” during this period to secure that credit flows towards companies and homes that need it most Marcel said. The Chilean government has already announced measures costing $11.5 billion dollars to protect employment, household income and companies. 

These measures were taken in response to the pandemic which has severely cut into the price of Chile’s main export and source of revenue, copper, while also increasing volatility, spurring capital flight and causing the currency to depreciate, the bank said in a statement. 

Marcel forecast a 1.5% to 2.5% fall in GDP in 2020 but expects the economy to grow by 3.75% to 4.75% in 2021 and by 3% to 4% in 2022.