(Bloomberg) -- Chile’s central bank held its benchmark interest rate at a record low as the nation slowly beats back its worst coronavirus surge to date.
The bank’s board, led by its President Mario Marcel, voted unanimously to keep the overnight rate at 0.5% on Thursday. The decision was expected by all economists surveyed by Bloomberg. Policy makers didn’t change any non-conventional measures to support liquidity.
“The convergence of inflation to the target within the monetary policy horizon continues to require highly expansive stimulus,” the bank said in a note accompanying today’s decision. “The key rate will be kept at its minimum of 0.5% for as long as needed for the economic recovery to gain strength.”
Chile’s central bank is keeping its stimulus in place even amid forecasts of stronger 2021 growth, driven by an effective vaccine rollout, consumer demand backed by a third round of pension fund withdrawals and higher prices for copper, which is the country’s top export. At the same time, headwinds include high unemployment and a slower pick-up in sectors including services.
“The monetary policy committee remains committed to continue to provide strong stimulus to ensure a consolidation of the uneven economic recovery,” analysts at Goldman Sachs Group Inc (NYSE:GS) including Alberto Ramos wrote in note before the bank’s decision.
Economists raised their growth estimate for this year to 6.2%, according to the central bank’s most recent survey published this week. They also see year-end inflation of 3.3%, above the 3% target.
Read more: Latin American Central Bankers Stung by Food Inflation Jump
Rising commodity prices and increasing inflationary pressures have led other countries to raise borrowing costs. Brazil has increased its key rate twice this year and has signaled more increases are ahead.
Weekend Vote
Policy makers are also on hold as Chile enters what many expect to be a period of fraught national politics. On May 15-16, citizens will vote for members of the body that will write a new constitution, as well as governors, mayors and city councillors. The result are likely to shape the upcoming presidential elections scheduled to take place in November.
Since the central bank’s last rate decision in March, the government has eased some mobility restrictions, including parts of the capital, Santiago. More than 7 million Chileans have already received two doses of vaccines, out of a total population of over 18 million.
(Adds central bank comment in the third paragraph.)
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