SANTIAGO: Chile’s central bank cut its forecast for economic growth this year for the third time, just hours after the institution held its interest rate steady and warned a period of malaise may continue for longer than expected.
The economy will expand between just 0.25% and 0.75% in 2026, down from the prior forecast of 1% to 1.75%, according to the central bank’s quarterly monetary policy report published on Wednesday.
Policymakers kept their 2027 growth estimate unchanged at between 2% and 3%.
Board members led by governor Rosanna Costa voted unanimously to keep borrowing costs at 4.5% for the sixth straight meeting late on Tuesday, as expected by all analysts in a Bloomberg survey.
In an accompanying statement, central bankers said the local economy remained subject to high uncertainty.
“On the one hand, the risks associated with the conflict in the Middle East remain present and have even intensified recently,” they wrote.
“On the other hand, although the domestic economy is expected to regain momentum towards 2027, it cannot be ruled out that its current weakness may prove more persistent than anticipated.”
Back in December, the central bank forecast growth of 2% to 3% for this year as the administration of President Jose Antonio Kast prepared to take office amid pledges to revive the economy.
Now central bankers are striking a more subdued tone than Kast, who repeated as recently as this week the economy will start improving by the end of 2026 following the approval of a series of tax cuts.
Chile government data published on Tuesday showed the cost of living rose much more than projected in August, with fuel prices increasing as the Iran war drags on.
At the same time, many analysts cut their growth forecasts for this year to below 1% after a slew of worse-than-expected data for July, when severe weather compounded existing headwinds like weak consumer confidence.
“The economic growth that was expected still hasn’t arrived,” said Nathan Pincheira, chief economist at Fynsa in Santiago. “The central bank lays out the possibility of even more persistent weakness.”
Recent prints showed the extent of the problem. Chile’s economic activity fell 1.7% in July, the biggest monthly drop since 2022, the central bank reported on Sept 1.
The result was dragged down by declines in crucial sectors including mining, commerce and services.
In their Tuesday statement, policymakers wrote that the domestic economy underperformed both in the second quarter and at the start of the third.
“This development has been accompanied by a slowdown in domestic demand, amid a deterioration in some of its fundamentals, compounded by the impact of adverse weather conditions in July,” they wrote.
Still, the outlook for investment remains favourable, according to the statement.
Chile’s consumer prices rose 4.1% in August from the year prior, the national statistics agency said.
Monthly inflation was 0.6%, double the median forecast of analysts in a Bloomberg survey, driven by pricier food and transportation.
While inflation expectations are anchored at the 3% target in two year’s time, higher fuel prices are pressuring the cost of living, Chile central bankers wrote.
“In the external environment, the main focus of attention continues to be the development of the conflict between the United States, Israel and Iran,” they said. “Most recently, hostilities between the parties have escalated again, bringing the price of a barrel of oil close to US$100 (it has since passed US$100 a barrel).” — Bloomberg
