MediumIV Macro Policy & Sovereign Debt8 September 2026, Tuesday
Central Bank of Chile holds its rate at 4.5% and cuts its 2026 growth forecast to 0.25–0.75%, highlighting stagflation risk
The Central Bank of Chile unanimously held its rate for a sixth time on 8 September. August inflation rose to 4.1% while the growth forecast was cut for a third time. In the Cadem poll, approval of the Kast government stood at 34%.
On 8 September 2026 the Central Bank of Chile unanimously held its policy rate at 4.5%, its sixth consecutive hold. The board stressed that uncertainty was above normal levels and that tension in the Middle East had recently escalated. In the Monetary Policy Report (IPoM) published afterwards, the 2026 growth forecast was cut from the June range of 1–1.75% to 0.25–0.75%. The outlook for fixed capital investment was revised from 2.2% growth to a 0.3% contraction. Annual inflation, at 4.1% in August, is above the 3% target. The bank projects growth of 2–3% for 2027. According to Central Banking, economists expect quarter-point increases in December 2026 and March 2027.
Chile supplies about a quarter of the world's copper output. The decline in mining output was among the reasons given for the cut in the growth forecast, showing that supply-side fragility remains important for copper prices. On the political front, in Cadem's 11 September poll of 1,000 people, President José Antonio Kast, who took office in March, received a grade of 3.4 out of 7. 34% of respondents approve of the government while 62% disapprove. According to the Rio Times, GDP contracted by 0.3% year on year in the first quarter and 0.2% in the second. The economic activity index fell 1.5% year on year in July. The combination of weak growth and high inflation is testing confidence in the government's tax-cutting and investment agenda.
Talay assessment
Bottom line
Chile's central bank is caught between 4.1% inflation, above its 3% target, and an economy that has contracted for two quarters. Offering no easing signal despite halving the growth forecast shows priority remains price stability. The most likely path is a continued hold in the near term; the December 2026–March 2027 hikes economists expect depend on how persistent inflation proves. Weak growth also strains the Kast government's reform agenda.
Likely effects
- Chilean growth and investmentNegative1–6 months
Revising the fixed investment outlook from 2.2% growth to a 0.3% contraction shows firms deferring decisions amid high uncertainty. Combined with tight monetary policy, 2026 growth could stay near the lower end of the 0.25–0.75% range.
- Copper supplyNegative1–6 months
Declining mining output in Chile, which supplies about a quarter of world production, adds to the fragility of global copper supply. Disruptions could put upward pressure on copper prices and raise input costs for copper-importing industrial economies.
- Kast government and reformsNegative1–6 months
Approval of 34% against 62% disapproval shows the government's political capital eroding after six months. Weak growth combined with high inflation tests confidence in its tax-cut and investment agenda.
Possibilities, ranked
- 1Hold continues, tightening later45%
Inflation stays above target; the bank holds at upcoming meetings and, as economists expect, raises by a quarter point in December 2026 or March 2027.
Watch: Monthly inflation data for September–November and stronger tightening language in board statements.
- 2Extended hold40%
Inflation slows on its own amid weak demand; the bank keeps the rate at 4.5% into 2027 with neither a hike nor a cut.
Watch: Annual inflation falling below 4% and continued contraction in third-quarter GDP data.
- 3Recession deepens, pivot to cuts15%
The contraction deepens, unemployment rises and the bank turns to rate cuts to support growth even with inflation above target.
Watch: A sharp third-quarter GDP contraction and an accelerating fall in the economic activity index.
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.