Open Market Operations

Since May 1995, the Central Bank of Chile implements its Monetary Policy by setting targets for the daily interbank interest rate, which is the interest rate at which banks grant loans to each other for a business day and without guarantees. Since August 2001, this rate has been established as a fixed nominal value instead of a fixed readjustable value (UF, which stands for Unidad de Fomento).

This interbank interest rate is the result of the supply and demand for resources by different banks. The Central Bank of Chile implements its Monetary Policy influencing the supply of resources, in order to bring the<> interbank interest rate as close as possible to the Monetary Policy Rate.

Open Market Operations are Monetary Policy implementation tools that inject or extract liquidity from the banking system in the short and medium term. Through the rates implied in the operations of fund collection and placement, the necessary opportunity costs are generated for the banking agents to transact the interbank rate around the current Monetary Policy Rate.

A bank’s demand for liquidity is related to its need to meet legal requirements, such as the cash reserve ratio and technical reserve, as well as to cover financing needs associated with its customers and its own businesses.