If a credit squeeze were to occur, it would become a recession amplifier, as on other occasions, pulling the economy out of its expected trajectory. This would create greater demands on monetary policy, which may or may not be possible to satisfy. 6  The Board will continue to apply a highly expansionary monetary policy, keeping the Monetary Policy Rate at its technical minimum for an extended time span, complemented by unconventional measures, and will keep a watchful eye to prevent risks to financial stability. III. Central Bank of Chile — Advances and Challenges  The Central Bank of Chile’s LOC establishes the obligation to present to the Senate, on or before September 30th of each year, “an appraisal of the advancement of the policies and programs of the current year, as well as a report on those proposed for the next calendar year, which shall state the general economic projections on which they are based and the effects that may occur on the main entries of the Bank’s financial statements projected for that period” 2. For some time now, this has translated in more than just submitting the September MP Report to the full Senate, introducing issues related to the Bank’s performance as a state-run organization. Thus, in the two previous MP Reports we have included our 2018-2022 Strategic Plan and the external evaluation to the policies implemented by the Bank.
Several of these measures have had an impact on the Bank’s assets, either by reducing them (sale of foreign currency) or increasing them (purchase of bonds and loans to commercial banks). The adjustments on the asset side have counterparts on the liabilities side, either by active measures (repurchase of long-term bonds from the Central Bank), or by monetary sterilization or liquidity absorption, or finally, to respond to changes in the demand for cash. The net effect of these operations and portfolio revaluations has an impact on the Bank’s net worth. On aggregate, these operations have involved an 86% growth in the balance sheet in one year, the equivalent of almost 10 points of GDP. At the same time, there have been significant changes in the composition of the balance 6 For further detail on these measures, their operating margins and effective execution, visit https://www.bcentral.cl/web/banco-  central/medidas-excepcionales. 8  sheet (Figure 16). Now the Bank records on the assets side internal credit items (FCIC-LCL) and local securities. The latter yield more than international reserves, although with a somewhat higher credit risk compared to the sovereign securities that make up the former. On the liabilities side, the counterpart has implied an increase in short-term debt placements (PDBC) and the use of permanent facilities that drain the system’s excess liquidity. There has also been an increase in the monetary base, explained by an increased cash demand from the population.