. long - term interest rates have responded well to monetary policy decisions, forward guidance and non - conventional tools. after the june monetary policy meeting and the release of our monetary policy report, 10 - year bond rates dropped some 40 bp. g. central bank measures extend well beyond the immediate emergency and are likely to foster economic recovery once containment measures begin to roll back. the mpr is likely to be held at its technical minimum over the next 24 months ; fcic funds are provided over a 4 - year horizon, and even short - term liquidity facilities will remain in place until early 2021. 16. still, some challenges remain on three fronts : a. lending to large corporations. for a number of years, big corporations have been tapping international and domestic corporate bond markets. they faced the covid - 19 crisis with rather sizeable cash holdings from bond issuing in the first quarter and the drawdown of bank credit lines. yet this liquidity will not last forever. reactivating the corporate bond market is key to prevent largescale corporations from crowding out smes from access to bank lending. the government and the cmf have adjusted regulations to speed up bond issuing and the central bank asset purchase program is likely to trickle down to corporate bonds, but more government action may be needed in order to reduce risk over these assets. b. expanding non - conventional tools. right now, the central bank has limited reach in the asset market, since the constitution forbids it from buying treasury bonds even in the secondary market as well as nonfinancial corporate bonds. a constitutional reform is making good progress in congress to remove the first constraint. c. recovering private consumption and investment. consumer and firms ’ expectations have plummeted in the last eight months, responding to the social crisis, first, and to the risk - off mood of the covid - 19 pandemic, later. private consumption and investment are expected to drop 6 % and 12 % this year. uncertainty is feeding into prudential savings by households and firms, despite government transfers, debt rollovers and credit availability. the recent agreement between government and main opposition in congress that broadened the horizon of fiscal support and enforced a medium - term budget constraint may help foster confidence. the expansion of central bank programs may operate in the same direction. 17. summing up, while chile has been hit hard by the covid - 19 pandemic, the economic policy response has been strong, consistent and sustainable over time. this may

by sound and liquid foreign assets. the latter include not only central bank reserves, but also sovereign wealth funds and foreign assets of domestic institutional investors. this has been recently enhanced by access to a usd 24 bn fcl from the imf, membership of the fed ’ s temporary foreign and international monetary authorities ( fima ) repo facility and a swap facility with the people ’ s bank of china. d. policy space is broader, thanks to sound management of fiscal, monetary and financial policy over many years. e. institutions are stronger, including high credibility of the central bank and a stronger social safety net. 14. these favorable factors outweigh some shortcomings, most notably the effect of social unrest in the last quarter of 2019. in fact, in the last three months markets have fully reversed the relative erosion of chilean asset prices at the end of last year. 15. so, how has the central bank used policy space? what challenges have emerged and how are these being resolved? a. the central bank has been largely proactive since november 2019. over the last eight months we have cut the policy rate by 125 bp to its effective zero lower bound at 0. 5 % and have implemented a dozen measures to provide liquidity to markets and to foster lending to firms most affected by the lockdown. b. credit measures amount to some 15 % of gdp, mainly around a medium - term liquidity facility to banks conditional on credit expansion. this provides 4 - year loans at the 0. 5 % policy rate, conditional on growth in corporate and consumer lending, increasingly weighted towards smes. this has provided the liquidity match to a government scheme providing guarantees to working capital lending under favorable financial terms. c. liquidity and other market - stabilizing measures add up to some 7 % of gdp. these include a mediumto long - term asset purchases that also provide unconventional monetary policy tools. page 2 of 3 central bank of chile june 2020 d. the response of bank credit to the central bank ’ s fcic and the government - funded fogape guarantees has been largely positive. corporate lending has been growing at 10 % year - on - year over the last three months, making it the first case of countercyclical lending in recent history. e. in particular, banks have used liquidity to allow the drawdown of credit lines by corporations, 1. 2 million rollover operations and 120, 000 working capital loans with a sme share largely above historical averages. f