Chile’s government stands ready to join the central bank in providing extra liquidity to the market as it did in December of last year, Finance Minister Felipe Larrain said.
The central bank said Nov. 8 it would allow banks to pawn peso bonds in return for cash, so-called repo operations, once a week until Dec. 18. The government is weighing up whether to repeat last year’s auctions of dollar deposits, Larrain said in an interview in Santiago today. It’s not clear as yet whether the measure is necessary, he added.
“It all depends on the market,” said Larrain, 54. “If we see an episode of drying liquidity, we will be prepared to do the same as we did last year. So far we haven’t seen that.”
Liquidity often falls at the end of the year in Chile as companies seek cash to bolster balance sheets, withdrawing dollars and pesos from the short-term debt funds that lend to the banks. The spread between 30-day interbank loans and the central bank’s benchmark rate fell two basis points to 1.03 percentage point today after the central bank yesterday loaned $177 million through its new repo window. That spread reached as high as 2.39 percentage points in December last year.
The central bank lent the banks $952 million in pesos in the last month of 2011, compared with the $49.8 million in U.S. dollars lent by the Finance Ministry over the same period, according to the budget office’s written response to a Bloomberg News freedom of information request. The figures indicated that the surge in bank funding costs last year was more local than external.