Chile's Central Bank hikes rates again as inflation hits 14-year high

Chile's Central Bank on Wednesday announced a third successive hike in its benchmark interest rate in a bid to contain inflation, which is at a 14-year high.

The bank announced an increase of 1.5 percentage points from 4.0 percent to 5.5 percent – the largest such hike in more than 20 years. 

Its previous two increases were both by 1.25 percentage points.

Having been stable at 0.5 percent for 30 months up to July 2021, the country's interest rate has been rocketing ever since.

Inflation, spurred by an excess of liquidity, ended 2021 at 7.2 percent, more than double the Central Bank's target of 3.0 percent.

The liquidity surplus came about after Congress allowed Chileans to withdraw funds on three occasions from their private retirement savings in order to weather the economic and social consequences of the coronavirus pandemic. 

Chileans withdrew some US$50 billion, nearly a quarter of the value of the funds created under the dictatorship of Augusto Pinochet, and to which workers alone contribute for their retirement.

A large social benefits scheme costing US$3 billion a month – also implemented to help mitigate the effects of the pandemic – likewise contributed to the increase in liquidity.

"The risks posed by the continued evolution of inflation remain significant," said the Central Bank, adding that international pressures contributing to inflation had also increased.

– TIMES/AFP