Central Bank of Chile extraordinary measures

CHILE - In Brief 17 Mar 2020 by Igal Magendzo
Following other central banks around the globe, in an extraordinary monetary policy meeting the Board of the Central Bank of Chile yesterday decided to lower the monetary policy interest rate by 75 bp to 1%. The decision was supported by three of the five board members (President Mario Marcel, Vice-President Joaquín Vial and Pablo Garcia) while the other two (Alberto Naudon and Rosanna Costa) voted for a reduction of 50 bp. Although the vote for cutting 75 bp was not unanimous, we believe that in its next Monetary Policy Meeting on 31 March the Central Bank will bring its Monetary Policy Rate (TPM) to 0.5%, as it did during the global financial crisis. In addition to lowering the MPR to 1%, the Board agreed to adopt measures to ensure “the normal functioning of credit markets and the effective transmission of the increased monetary stimulus”. These measures are: A conditional funding facility for banks for the increase in commercial and consumer loans (Facilidad de Financiamiento Condicional al Incremento de Colocaciones, FCIC). The additional resources will be proportional to the increase of each institution’s loans with respect to a benchmark portfolio. The banking firms using this facility will pay a floating interest rate equal to the TPM.Corporate bonds will be included as eligible collateral for all effective liquidity operations in pesos, including the FCIC.A banking bond purchase program for up to US$ 4 billion. The decision regarding these additional measures was unanimous. We believe these measures should help to reduce the probability of a credit crunch or massive defaults.

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