(Bloomberg) -- Chile’s central bank kept borrowing costs unchanged at a record low and doubled the size of a credit line to banks to boost lending as the economy heads for the deepest recession in 40 years.
The bank’s board, led by its President Mario Marcel, voted unanimously to keep its overnight rate at 0.5% for a second straight meeting, as expected by all 18 economists surveyed by Bloomberg. The rate matches the historic low reached during the global financial crisis.
The bank increased a credit line facility to $16 billion to ease lending to companies reeling from the impact of the pandemic and the quarantine measures designed to slow the spread of the disease. Analysts expect the economy to contract 4.8% this year, according to the latest central bank survey, with a 13% contraction forecast for the second quarter. The bank updates all its forecasts in the quarterly monetary policy report released Wednesday.
“The board reiterates that it will maintain elevated monetary stimulus for a prolonged period of time,” the bank said in a statement accompanying today’s decision. “In case the economic events require it, (the bank) will evaluate options to increase said impulse and support financial stability.”
The bank also announced a plan to buy $8 billion in assets. It will provide a detail of eligible assets and the timeline in coming days. The current situation needs more stimulus than what the interest rate can provide, according to Hugo Osorio, deputy head of investment strategy at Falcom Asset Management.
“We don’t know what kind of assets the bank will buy; it could easily be corporate bonds, like the Fed recently announced,” Osorio said. “Lowering spreads and increasing liquidity will help the economic recovery.”
Policy makers moved aggressively in March with two cuts totaling 125 basis points and have injected liquidity into the economy through orthodox and unorthodox mechanisms as a support measure.
As well as the credit line, the central bank is buying back its own bonds and those sold by local banks to increase liquidity in the market. It has also intervened in the foreign exchange spot and forwards markets.
(Updates with analyst quote in fifth paragraph.)
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