Economy

Chile central bank doubles benchmark interest rate to 1.5%

The bank began to withdraw monetary stimulus last month, lifting the rate to 0.75% after an extended period of maintaining it at 0.5%

Photo: REUTERS/Ivan Alvarado/File Photo
  • In July, Chile’s consumer prices rose 0.8% and rolling 12-month inflation hit 4.5%;
  • The increase in prices was led by jumps in the cost of transportation and especially gasoline.

Chile‘s central bank said on Tuesday it would raise its benchmark interest rate to 1.5% from 0.75%, as a rapid COVID-19 vaccination program helps the world’s top copper producer resume economic activity and inflation ticks upward.

The bank began to withdraw monetary stimulus last month, lifting the rate to 0.75% after an extended period of maintaining it at 0.5%, its lowest point since the outbreak of the pandemic and associated lockdowns.

The bank’s board said in a communique it made the unanimous decision to double the interest rate out of a need “to avoid the accumulation of macroeconomic imbalances that could cause a more persistent increase in inflation.”

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Externally, it highlighted a sustained global economic recovery and said its move was in keeping with the actions of several other central banks in emerging economies in response to rising inflation.

In Chile, the bank said, financial market volatility persisted because of the further potential for new withdrawals by Chileans from their privately held pension savings, something that central bank chief Mario Marcel has warned could fuel inflation and overheat the economy.

In July, Chile‘s consumer prices rose 0.8% and rolling 12-month inflation hit 4.5%, the highest level since March 2016, surprising traders who had anticipated inflation would increase by just 0.3% last month.

READ ALSO: Chile’s GDP jumps 18.1% on year-on-year basis in Q2

The increase in prices was led by jumps in the cost of transportation and especially gasoline, Chile‘s statistics agency, INE, said, although prices for food and non-alcoholic beverages also rose sharply.

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