Itaú BBA - CHILE – Monetary Policy Meeting Minutes: Emphasizing low-for-long message

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CHILE – Monetary Policy Meeting Minutes: Emphasizing low-for-long message

Abril 16, 2020

While rates would remain at their technical minimum throughout the year, we cannot rule out the use of additional forms of monetary tools.

The minutes of the March 31 meeting show that the deterioration of the macroeconomic outlook and its implications for inflation required a significant increase in monetary stimulus. While the peso depreciation put upward pressure on inflation in the short term, falling oil prices and a widening output gap would more than offset these pressures in the medium term. Hence, all board members agreed that the prudent option was to lower the policy rate by 50bps to its technical minimum of 0.5%. Although several members noted that the option to lower the rate by 25bps was reasonable, it lost appeal when considering the urgency of the current situation. The board also deemed it essential to signal that the expansionary stance would persist for a significant period, along with the use of non-traditional measures to support liquidity and credit, in an effort to sustain the smooth functioning of the financial system that would help limit the damage to activity, employment and income derived from the global shock.

The central bank emphasized that the current crisis was unfolding in the corporate sector, requiring the use of alternative monetary policy tools to prevent a more permanent impact from the global shock. Board members explain that a corporate crisis entails the need for companies to increase their access to loans to overcome the transitory drop in revenue. The board notes that in order to ensure the proper functioning of monetary policy transmission channels, the central bank might have to explore new paths that it would otherwise not have considered (likely referring to measures including targeted liquidity lines and the purchase of bank-issued securities). Urgency to act was also highlighted to prevent a significant loss of corporate equity that could hurt the solvency of financial intermediaries and demand more drastic measures from the central bank.

The board acknowledged that financial markets had responded positively to measures taken to address the crisis, easing some earlier doubts. Ahead of the 75bps rate cut in mid-March, the board noted there was a robust debate regarding the trade-off between the larger monetary stimulus required and related risks to stability of the financial markets. However, the significant deterioration of the macroeconomic scenario since that meeting, despite some positives from the financial front, had cleared the path for increased monetary stimulus. Financial markets had correctly assimilated the exceptional measures undertaken in many countries, allowing them to adjust to the new scenario.

Given the scenario outlined by the board, we expect rates to be kept at their technical minimum throughout the year. Furthermore, we cannot rule out the use of additional forms of monetary tools to preserve the correct transmission of monetary policy and facilitate credit flow to companies and individuals in need of funds to overcome this challenging period.


Miguel Ricaurte
Vittorio Peretti

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