Chilean Government

If one analyze strong trimming of rates realized (and future cuts) according to the need of supporting the expansive fiscal policy carried out by the Chilean Government to maintain the pace of economic growth, then such a cut has a greater logic that it would enhance the power of fiscal policy. The new level of interest rates is intended to increase the level of liquidity in the financial system so that it generates the necessary financing for private activity (consumption of families and investment). But this relationship is not so simple. You cannot pretend that only with this no lower cut in the interest rate of reference credit is reactivated. Click Ebay for additional related pages. The transmission channels of monetary policy, both in Chile and in the rest of the economies, are very weak. Fears of losing the job families weaken consumption, poor economic prospects, discourage companies to invest. By the side of the banking entities, the increased risk of non-payment of loans together with the need to maintain a higher level of liquidity given a volatile context, makes less likely to lend. In addition, the weak internal context detract significantly, power to the exchange rate channel.

In relation to the exchange rate issue, strong trimming rates and continuity of that address in monetary policy, increase the prospects of depreciation of the Chilean peso, which could bring negative consequences in inflationary terms. So far, is not reflecting anything but this behavior in the foreign exchange market, the Chilean peso closed in the day Friday and after a strong rise, at its highest level of the last four months against the US dollar to the exchanged in $578,5 for dollar selling tip. This behavior of the exchange rate is attributable to an oversupply of dollars in the market since there is a change of portfolio investors who are taking positions in fixed income instruments. However the behaviour observed in the exchange rate, the odds that the same return its depreciation path, will increase in both and as soon as does not improve the growth prospects for the Chilean economy.