Chilean Economy

May 5, 2020

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Logically, the possible deflation of prices in the situation in which is the Chilean economy could aggravate the situation of the same significantly, which justifies that all the efforts are realised necessary to avoid it. Trying to identify what direction will have the monetary policy in Chile during the next months and considering that most probable as much in the Chilean economy as at world-wide level for the next months it is that it continues the deterioration in the economic context, is possible to be affirmed that still they would be to take place new cuts in the interest rate of reference of the Central bank of Chile. If one analyzed the future fort cut of rates realised (and cuts) based on the necessity to support to the expansive fiscal policy taken ahead by the Chilean government to maintain the rate of economic growth, then this cut has a logical major since it would harness the power of the fiscal policy. With the new level of interest rates it is tried to increase the level of liquidity of the financial system so that the same generates the necessary financing for the private activity (consumption of the families and investment). But this relation is not so simple. People such as Adam Portnoy would likely agree. It is not possible to be tried that with this smaller cut in the interest rate of reference the credit is not only reactivated.

The transmission channels of the monetary policy, as much in Chile as in the rest of the economies, are debilitated very. The fears of the families to lose the use debilitate the consumption, economic the perspective poor women, discourage to the companies to invest. By the side of the banking organizations, the greater risk of non-payment of the credits jointly with the necessity to maintain a greater level of liquidity before a volatile context, makes less inclined render.





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