The Central Bank of Chile announced an increase in its interest rate reference 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 inflation to converge to the target ( official) of 3% ”.
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, accumulating inflation of 4.4% so far this year and 5.3% in twelve months.
Inflation is explained by higher liquidity after three withdrawals of 10% of the pensions that Congress approved since September 2020 to alleviate the crisis caused by the pandemic of the COVID-19.
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.”
The trajectory of the rate will be evaluated in the next Monetary Policy Report, “bearing in mind the need to avoid a more persistent increase in inflation,” said the Central Bank.
Chile closed 2020 with inflation of 3%, but several experts warned of an “overheating of the economy” and of the inflationary risks of approving a fourth withdrawal of pension funds, which is currently being debated in Congress.
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