Rapid Inflation Measures in Chile Likely to Boost Economic Expansion
Chile's economy, which experienced a peak inflation rate of 14% in the third quarter of 2022 due to geopolitical conflict, supply chain disruptions, and a liquidity shock, is expected to show a significant improvement in 2024. According to Santander Chile's economists, Chile's GDP growth rate is projected to be between 2.5% and 3.0%, reflecting a moderate expansion amid a challenging macroeconomic environment.
This optimistic outlook suggests a transition towards a normalized growth phase after Chile's previous robust performance. Regarding monetary policy normalization, Santander Chile anticipates a gradual shift towards neutral interest rates during 2024. The Central Bank of Chile is expected to moderate rate hikes and potentially begin easing after reaching a peak to curb inflation without stalling growth. This timeline indicates that monetary tightening will continue in early 2024 but start to normalize in the latter part of the year, supporting improved credit conditions and financial stability.
The Central Bank of Chile ended 2023 with a policy rate of 8.25%, following aggressive action to combat inflation. By the second quarter of 2024, inflation is expected to hit the policymakers' target of 3%. Economic activity in Chile is projected to be boosted by more favorable interest rates, lower inflation, and a more stable political outlook.
GDP growth in Chile is estimated to be more than 1% in the first half of 2024 and 2% by year end. Private consumption is expected to increase due to the improved economic conditions. In the base scenario, Chile's benchmark rate is expected to be around 4.5% at the end of 2024, with a general relaxation of monetary policy expected from Chile's central bank and counterparts around the world.
Investment in Chile is expected to recover slowly in 2024, buoyed by the improving economic climate. Despite the weak job market and financial landscape, prospects of rate cuts are gaining traction in Chile. The speed and size of monetary policy rate normalization will depend on local macroeconomic context, international risks, and decisions by the US Federal Reserve and other major central banks.
The Vice President of Communications, Marketing, and Studies at Santander Chile expresses optimism about the signs for Chile's economy. The fall in inflation is being driven by more stable global prices and domestic demand. Economic activity in Chile is expected to be further boosted by these factors, painting a picture of cautious optimism amidst global and local economic uncertainties.
The Vice President of Investor Relations at Santander Chile might find the changing monetary landscape, marked by the anticipated gradual shift towards neutral interest rates and potential rate cuts in 2024, an attractive financial prospect for business investments. The improved economic conditions, including lower inflation and more stable global prices, could positively impact Chile's business sector.
