President Santiago Bausili recently announced the fourth reduction in the reference interest rate during Luis Caputo’s tenure as minister. This decision, aimed at reducing the cost of living, has resulted in a debt liquidation party for savers. The rate now stands at 50% annually, equivalent to 4.2% monthly.
The reduction in interest rates on fixed-term deposits has fallen to around 37-40% annually, below any inflation forecasts for the near future. This move by the Central Bank aims to finance debt payments through savers in pesos. However, with limited access to adjustable deposits, savers may find themselves losing in real terms.
One perspective suggests that the Central Bank’s move is aimed at “liquefying” the Central debt as advocated by President Javier Milei. This strategy is seen as essential to raising the exchange rate, given current limitations on accessing dollars at official prices. The strength of dollar stocks plays a significant role in mitigating the impact of interest rate reductions on free dollars due to the presence of the blend dollar system.
As government officials continue negotiations with China over a looming debt repayment of US$5 billion in June, uncertainty remains surrounding specifics of swap agreement details. While officials have expressed intentions to honor payment, this does little to ease financial landscape uncertainties in coming months.
In conclusion, President Bausili’s decision to lower interest rates has implications for both savers and debt management strategies in Chile’s financial landscape remain uncertain due to ongoing negotiations and uncertainties surrounding debt repayments.
