Chile’s Central Bank Just Halved Its Growth Forecast for This Year
CHILE · ECONOMY
Key Facts
- —The cut The 2026 range fell to 0.25-0.75%, from a previous 1.0-1.75%.
- —The reason The bank says the economy weakened through the year, on supply early and on demand later.
- —The recovery It projects 2.0-3.0% for 2027 and 2.25-3.25% for 2028.
- —The inflation Prices are running near 4% and are expected slightly above that at year end.
- —The catch Convergence to the 3% target is not forecast until the second quarter of 2027.
- —The rate The policy rate was held at 4.5% at the meeting on 8 September.
A forecast that starts with a zero is a different document from one that starts with a one. Chile now expects to grow less this year than its population.
Chile’s central bank halved its growth forecast for 2026 this week. The new range is 0.25% to 0.75%.
The previous range was 1.0% to 1.75%. Cutting the midpoint from about 1.4% to about 0.5% is not a technical revision.
The bank published the change in its monetary policy report on 9 September. It came the day after the board held the policy rate at 4.5%.
What the Bank Says Went Wrong
Its explanation is sequential rather than single-cause. The economy weakened across the year rather than hitting one shock.
Supply-side problems dominated the first quarter. Demand weakness took over from the second quarter onward.
That combination is awkward for policy. Supply problems argue for patience while weak demand argues for stimulus, and the two do not resolve into one rate decision.
The bank’s answer for now is to hold. The policy rate has stayed at 4.5%.
The Inflation Problem Underneath
Chilean inflation is running near 4%. The bank expects it slightly above 4% at the end of 2026.
The target is 3%. Convergence is not forecast until the second quarter of 2027.
That is why the growth forecast cut has not produced a rate cut. A central bank with inflation a point above target and falling growth is in the least comfortable position available to it.
External conditions are not helping. Energy prices have risen sharply on Middle East conflict, which feeds directly into a country that imports almost all its oil.
Brent crude pushed above US$105 this week before easing back toward US$100. For Chile that lands as imported inflation and a weaker currency at the same time.
The peso has been trading at multi-month lows against the dollar. A weaker peso raises the local price of the fuel that is already more expensive in dollars.
What a Sub-1% Year Means
Chile’s population grows by roughly half a percentage point a year. A growth forecast of 0.25% to 0.75% therefore brackets zero in per-capita terms.
At the bottom of the range, Chileans get poorer on average. At the top, they stand still.
That is the number that matters politically rather than the headline rate. It arrives six months into a new government that campaigned on economic recovery.
José Antonio Kast took office in March. The forecast covers a year that is mostly his, though the first quarter’s supply problems are not.
What the Data Already Showed
The downgrade did not arrive without warning. Chilean activity readings had been softening through the middle of the year.
Consumer prices rose 0.6% in August and 4.1% over twelve months. That is the reading sitting a full point above the central bank target.
Food and transport were the main contributors in the August release, published on 8 September. Information and communication pulled the other way.
Nine of the thirteen divisions in the index rose. Three fell and one was neutral.
None of that is a crisis and all of it constrains policy. A bank cutting rates into 4% inflation would be betting its credibility on a forecast it has just revised.
The Recovery the Bank Expects
The bank sees 2.0% to 3.0% growth in 2027. It sees 2.25% to 3.25% in 2028.
Those are respectable numbers for Chile and they depend on inflation behaving. The whole projection assumes convergence to target during 2027.
Forecasts two years out are weak instruments, and this bank has just demonstrated why. The 2026 range it is replacing was published earlier this year.
For investors the practical reading is narrower. Chile is not in recession and its policy rate is not moving soon.
Its copper revenue depends on conditions set in China rather than in Santiago. That has been true through every Chilean government of the past two decades.
Copper is roughly half of Chilean exports by value. Any forecast for Chilean growth is in part a forecast for Chinese construction and grid investment.
That is the honest limit of a domestic monetary policy report. The bank can set the price of money in Santiago and it cannot set the price of copper.
More: Chile news in English, every day from The Rio Times.
Frequently Asked Questions
What is Chile’s new growth forecast?
The central bank expects growth of 0.25% to 0.75% in 2026, down from a previous range of 1.0% to 1.75%.
Why is the bank not cutting rates?
Because inflation is running near 4% against a 3% target, and convergence is not expected until the second quarter of 2027.
What is Chile’s policy rate?
4.5%. The board held it at that level at its meeting on 8 September 2026.
What does this mean per person?
Chile’s population grows by roughly half a percentage point a year, so the forecast range brackets zero growth in per-capita terms.
Sources: Banco Central de Chile, Diario Talca, Duplos.
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