This 2009 Article IV Consultation highlights that the Chilean economy has proved resilient in the face of the global financial crisis. The policy response to the crisis has been sizable, well balanced, and coordinated. Executive Directors have commended the Chilean authorities for their sound policy framework underpinned by an inflation target regime, a structural budget rule, and a flexible exchange rate regime. Directors have also endorsed the Central Bank of Chile’s decision to implement alternative means of monetary easing to support activity and a return of inflation to the target.
1. This statement provides additional information that has become available since the circulation of the staff report. It does not alter the thrust of the staff appraisal.
2. In its July 9 policy meeting, the Central Bank of Chile (BCCh) lowered its policy interest rate and adopted alternative means of monetary policy easing. The BCCh reduced the policy rate by 25 basis points, to ½ percent, and noted that it would leave the policy rate at this level for a prolonged period of time to support inflation returning to the 3 percent target over the policy horizon. The BCCh also announced complementary measures to better align market rates with the policy rate; including the establishment of a short-term liquidity facility to allow borrowing by banks at the policy rate for 90-180 days; the adjustment of the issuance of short-term bank notes to preserve its consistency with the new liquidity facility, and the suspension of the previously planned issuances of 1-year notes and 2-year nominal bonds for the remainder of 2009. As a result of these measures, interbank interest rates for up to 180 days have converged to the policy interest rate and yields for BCCh bonds have declined.
3. There has been progress in advancing the agenda for strengthening corporate governance in public sector enterprises and for improving coordination among supervisory agencies. The reform project for improving CODELCO’s corporate governance is in its final stages of approval by the Senate. On July 7, the Superintendency of Banks and Financial Institutions announced that the Committee of Superintendents had signed an MOU to strengthen coordination among the supervisory agencies overseeing financial institutions, pension funds, and securities markets.