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Chile to Consider Further Cuts in Maximum Rates on Some Loans

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May 14 (Bloomberg) -- Chile’s government may consider a further push to reduce interest rates for consumers and small businesses, if a bill currently under debate in Congress doesn’t undermine people’s access to credit, Economy Minister Pablo Longueira said.

The government will wait six months for a reduction in the maximum interest rate on small loans to take effect and then assess the impact on bank lending to see if it’s feasible to make a further reduction, Longueira said in an interview in Lima today.

“It’s a measure that we can evaluate, revise and perfect over the time,” he said. “It makes no sense making a brusque change and then causing enormous damage. We can continue reducing it if there is space and there hasn’t been” a reduction in bank lending.

Chile’s government sent legislation to Congress last year that would reduce the maximum interest rate on loans of as much as 4.3 million pesos ($8,750) to less than 50 percent. Under the proposals, the rate ceiling would fall to 1.35 times the market average, from 1.5 times, or the average plus 12 percentage points, whichever is lower, Finance Minister Felipe Larrain said last year.

Any move by lawmakers to alter the bill to force a bigger reduction in the maximum rate would carry “enormous risk” because it may mean poorer customers are denied credit and have to turn to loan sharks, Longueira said.

“We would put them in an even worse situation,” he said. “One has to be very responsible in the way this is done. We’re not going to tolerate populism or demagoguery on such an important subject.”

Banks such as Banco Santander Chile, the country’s biggest lender, say the legislation poses a threat to their profits.

To contact the reporters on this story: John Quigley in Lima at jquigley8@bloomberg.net; Randall Woods in Santiago at rwoods13@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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