Chilean bond yields fell after the central bank said policy makers discussed cutting rates at this month’s meeting and expressed concern about turmoil in local financial markets.
The yield on inflation-linked central bank bonds due in five years fell four basis points, or 0.04 percentage point, to a one-month low of 2.38 percent at 2:00 p.m. in Santiago. The yield on similar 10-year bonds fell three basis points to 2.54 percent. The peso slid 0.1 percent to 521.75 per U.S. dollar.
Policy makers considered cutting rates by 25 basis points on Dec. 13 before voting unanimously to keep them unchanged as Europe’s debt crisis intensified, the meeting minutes showed. Continued “frictions” in local financial markets in coming weeks would justify the start of a rate-cutting process, one policy maker said. In the days following the meeting, borrowing costs for Chilean lenders soared amid a liquidity squeeze that prompted intervention from the central bank and government.
“The minutes are now expressly talking about a reduction in the rate in the short term,” said Nathan Pincheira, an economist at Banchile Inversiones in Santiago. “At the next meeting the discussion will be whether to cut by 25 or 50 basis points. That may cause a movement in benchmark yields.”
Yields may rise should the central bank announce it will sell more bonds next year than the market is expecting, according to research from Banco de Credito & Inversiones. The bank may sell $3 billion worth of bonds next year, as well as $8.5 billion of government debt, which would exceed forecasts, according to BCI.
The interbank lending rate in dollars for 360 days fell to 2.89 percent from 2.96 percent, according to the banking association. The cost of borrowing dollars for 30 days rose four basis points to 1.46 percent, the highest since January.
Interest rates on short-term deposits were little changed from yesterday, according to data from the Santiago stock exchange. The central bank yesterday said it hadn’t accepted any assets in the second scheduled repurchase window.
A spike in term-deposit rates last week pushed Chilean mutual fund managers into revaluing money-market funds using mark-to-market values, and the decline in yields is now having the same effect in reverse. The bank carried out a one-off repo on Dec. 21 and announced a twice-weekly window on Dec. 22.
The average monthly rate on deposits due in less than 31 days was unchanged at 0.47 percent. The rate on deposits due between 31 and 60 days rose to 0.52 percent from 0.51 percent while the average rate on deposits due between 61 days and 90 days was unchanged at 0.52 percent, according to the Santiago stock exchange.
Bank Borrowing Costs
Annualized bank borrowing costs for maturities of 30 to 89 days fell 24 basis points to a one-week low of 6.36 percent on Dec. 26 from 6.6 percent on Dec. 23, according to the central bank. The rate for maturities between 90 and 365 days fell to 6.24 percent from 6.36 percent.
Offshore investors in the Chilean peso forwards market increased their short position in the currency to the highest since Oct. 11 on Dec. 26, according to central bank data published today.
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