Chile central bank increases benchmark interest rate to 0.75%

FILE PHOTO: A security worker guards an entry of the Chilean Central Bank building in downtown Santiago, Chile March 16, 2021. REUTERS/Ivan Alvarado

SANTIAGO (Reuters) – Chile’s central bank raised its benchmark interest rate to 0.75% from 0.5% on Wednesday, as a rapid COVID-19 vaccination program helps the world’s top copper producer resume economic activity.

The bank had kept its interest rate steady since successive cuts up until late March, when it warned of a “severe” economic contraction as a result of the virus.

“In a context of gradual normalization, monetary policy will continue to accompany the recovery of the economy,” the bank said in a statement.

The rate move reflects a more hawkish approach here to monetary policy anticipated by market watchers of Latin American central banks amid gradually rising inflation.

In the past month, the central banks of Brazil and Mexico, the region’s two largest economies, raised their benchmark interest rates, highlighting the increasing attention being paid by policymakers to inflationary risks in a region where countries like Brazil spent years struggling with hyperinflation and others like Argentina still battle double-digit annual price increases.

In Chile, polls by the central bank of analysts and traders in recent weeks have agreed the rate was set to rise as inflation ticks upwards, but were divided on when, with analysts saying it would increase to 0.75% by August and traders saying it would increase by 25 points as early as this month.

The analysts saw inflation at 0.3% in July and hitting 3.3% within 11 months, the higher end of the bank’s 2-4% target, while the traders saw consumer prices increasing 0.3% in July and hitting 3.4% in 12 months.

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