Chile’s Central Bank Warns Forced Asset Sales are Biggest Risk
(Bloomberg) -- Chile’s biggest financial system risks stem from forced asset sales by local pension funds and insurers to make payouts to workers who are tapping their retirement savings, according to the central bank.
“The main risk for local financial stability comes from new forced liquidations of assets that continue to erode the intermediation of resources and the greater uncertainty that this entails,” policy makers wrote in the financial stability report for the second half of 2021 published on Wednesday.
Since the start of the pandemic, lawmakers have approved three rounds of early pension drawdowns that have pumped $49 billion into a red hot economy. The central bank has said the withdrawals are weakening capital markets, spurring inflation and undercutting financing. A fourth round of withdrawals that could inject another $20 billion is being discussed in congress.
The yield on Chile’s 2030 peso-denominated Treasury bond has spiked to 6.81%, compared to a 52-week low of 2.5% in May. Only the Turkish lira has performed worse than the peso in the last six months and the equity benchmark S&P IPSA has fallen the most world in the same period, when measured in dollars.
Amid uncertainties, there are signs that common Chileans are taking action. “There have been capital outflows from households and companies and an incipient preference for assets in foreign currency,” according to the bank report.
The monetary authority acknowledged there is only so much it can do to counter local uncertainty. “The measures applied by the central bank are designed to contain volatility in the short-term, and not to reverse structural changes,” it said.
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