Chile’s BC has biggest interest rate hike in 20 years due to inflationary pressures | Economy

The Central Bank of Chile announced on Wednesday (13) an increase in its reference interest rate to 2.75% per annum from 1.50%, the biggest increase in 20 years, in a context of inflationary pressures.

Amid a “marked and systematic” deterioration of the financial markets, the monetary authority raised the interest rate by 125 basis points to 2.75%, in view of a “macroeconomic scenario that increased the risks for the convergence of inflation to the target (official) of 3%”.

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The rate increase, the largest since 2001, comes after a 1.2% rise in the consumer price index (CPI) in September, the highest monthly figure in 13 years, accumulating an inflation of 4.4% in 2021 and of 5.3% in twelve months.

Inflation is explained by greater liquidity after three withdrawals of 10% of pensions, which Congress approved in September 2020 to mitigate the crisis caused by the Covid-19 pandemic.

The issuing institute maintained that prospects for the coming months have been high “in a context in which inflation expectations with a two-year term are above the 3% target”.

The upward trajectory will be evaluated in the next Monetary Policy Report, “bearing in mind the need to avoid a more persistent increase in inflation”, highlighted the Central Bank.

Chile ended 2020 with a 3% inflation rate, but several experts warned of a “reheating of the economy” and inflationary risks if a fourth withdrawal of pension funds is approved, currently under discussion in Congress.