Chilean Central Bank to Open Weekly Repurchase Window

Chile’s central bank will allow banks to pawn bonds in return for cash once a week until December to avoid a repeat of last year’s liquidity squeeze.

In the repurchase agreements, or repos, the central bank will charge 25 basis points more than its benchmark rate, now at 5 percent, for loans due in 60 or 90 days, it said today in a statement on its website.

Last December the bank started offering twice-weekly repo operations after short-term borrowing costs spiked. Liquidity often falls at the end of the year in Chile as companies seek cash to bolster balance sheets, withdrawing money from the short-term debt funds that lend to the banks.

The central bank bought $952 million of assets denominated in pesos for repurchase in three months or less between Dec. 21 and Dec. 30. Short-term borrowing costs in pesos plunged after the intervention.

The spread between 90-day interbank loan rates and the benchmark fell to 1.39 percent today from 1.48 percent a week ago. The spread went as high as 2.2 percent in December. The spread between 90-day interbank loans and the three-month peso swap rate fell to 1.4 percent from 1.52 percent a week ago.

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