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economy can overcome new closings

(Bloomberg) – The Chilean economy is more resistant to coronavirus quarantines than last year and its impact on activity will be slight, central bank president Mario Marcel said in an interview.

The country’s output gap is closing faster than expected and Chile is experiencing inflationary pressure from oil and transportation costs, Marcel said Friday in an interview with Bloomberg TV. In this context, the bank’s board will evaluate the possibility of an interest rate hike in the next meetings. “Without a doubt, it will happen this year,” he said.

He added that the bank will assess whether the output gap, or the difference between potential and real growth in the economy, will continue to close on a sustained basis. Right now, inflation is not extremely far from our goal. There seems to be room in policies to evaluate and make a good decision, he said.

Chile is close to joining emerging markets such as Russia and Brazil, which are raising interest rates as economic activity and inflation rebound from a pandemic-driven recession. Policy makers expect gross domestic product to rise between 8.5% and 9.5% this year, while consumer prices are well above the 3% target. The outlook will be hampered by the new quarantines and also by unemployment.

A rate hike in Chile is “imminent,” as delaying policy normalization has little value, analysts at Goldman Sachs Group Inc. wrote in a research note this week. Both economists and traders surveyed by the monetary authority expect borrowing costs to rise from an all-time low before the end of the year.

The stimulus, which includes pension withdrawals and emergency spending, is boosting demand in one of the richest countries in Latin America. The interest rate has been kept at a technical low for more than a year, and the government recently expanded aid to families and announced direct transfers to small businesses.

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The government of President Sebastián Piñera announced this week that it will again impose strict quarantines in the capital, Santiago, where around 40% of Chile’s population lives. Daily COVID-19 cases have reached a record this month and hospitals across the country are practically crowded.

Original Note: Chile Central Bank Head Says Economy Can Ride Out New Lockdowns

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