Chile Central Bank Rate Cycle Starts: Stronger peso possible

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Chile Central Bank Rate Cycle Starts: Stronger peso possible

Post by admin » Fri Oct 19, 2018 10:00 am

Well, the Chilean central bank is starting to boost rates, after keeping them at historical lows through much of the Bachelet administration due to the low growth.

https://www.df.cl/noticias/economia-y-p ... 94957.html

They moved from 2.5 to 2.75%, which is still a real rate of negative 0.35%. looks like the target is about 3.5% in 2019, and 4.0+ to some sort of neutral rate.

What does that mean on a daily level?

A stronger peso to the dollar going forward, or at least stop the weakening peso as the U.S. fed raises interest rates.

Should start to see some of the steam taken off certain prices in housing markets (e.g. new apartments in Santiago), but I would not expect much of any impact for the next few years. A lot of banks have dialled back their down payment requirements from around 20% to 10%, and increased their number of second and third mortgages they are issuing to a single individual. Chileans still like real estate for investment. I doubt a higher rate is going to discourage them much. Generally, historical real estate returns, still crush the interest rates by a wide margin in most markets.

Might see things like cars and other consumer loans get dialled back.
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