Central Bank slashes 2026 growth forecast as government launches capital markets reform

The Central Bank today cut its 2026 growth projections to a range of 0.25% to 0.75%, down from the previous 1.0% to 1.75%, in what stands as one of the sharpest revisions from the monetary authority in recent years — and the news landed on the same day the José Antonio Kast government unveiled its most ambitious capital markets reform to date, creating a narrative tension that defines the current state of the Chilean economy: a country legislating for growth while its short-term fundamentals deteriorate rapidly.

Central Bank President Rosanna Costa acknowledged before the Senate that "the local economy has weakened over the course of the year," citing a sequence of destructively overlapping factors: supply shocks in the first quarter, followed by a contraction in domestic demand from the second quarter onward, a deteriorating labor market, falling confidence indicators, and the persistent impact of higher fuel prices on disposable income for households and businesses. The most unsettling data point in the September Monetary Policy Report is not the downgrade to this year's growth — which markets had already priced in following the weak July Imacec — but rather the surprising projected decline in investment for 2026, an indicator that economist Tomás Izquierdo of Gemines Consultores characterized as a sign that the Central Bank is belatedly recognizing the weight of demand-side factors. For Aníbal Alarcón, senior economist at Scotiabank, the IPoM's message is unambiguous: "the Central Bank is signaling that the recession is continuing." Claudia Martínez, director of the Institute of Economics at UC, added that the monetary authority's data reveal a growing decoupling between growth and employment, with the unemployment rate at 9.5% according to INE for the May-July moving quarter — and one on which Finance Minister Jorge Quiroz and Labor Minister Tomás Rau hold publicly divergent targets.

Against that recessionary backdrop, the government chose this Wednesday to launch MK4, its capital markets reform structured around four pillars: housing access and savings promotion; positioning Chile as a regional financial hub; regulatory simplification; and new funding sources for companies of varying sizes. The centerpiece is the National Housing Fund (Fonavi), administered by BancoEstado, seeded with an initial state contribution of USD 500 million that can be leveraged up to ten times through state-guaranteed debt issuance, with the goal of financing 150,000 homes over four years at 30-year terms, 10% down payment, and competitive rates. Structurally, the fund could reach up to USD 20 billion once it issues quotas and places bonds in the market. The government projects that the combined measures will add almost a full percentage point to the level of GDP over the next decade, with a net fiscal cost — including the positive growth effect — of around USD 280 million through 2031.

The industry reception was broadly favorable. Juan Andrés Camus, chairman of the Santiago Stock Exchange, highlighted the incentives for financial services exports, the operability of REPOs, and reduced requirements for foreign investors, including the elimination of the RUT and of VAT on financial services exports. Juan Carlos Spencer, of the Bolsa Electrónica, was more emphatic: "this is an opportunity, and I don't think there will be others." Guillermo Tagle, chairman of the Central Securities Depository, spoke of "a truly significant leap into the future." The reform also contemplates a special exchange segment for junior companies — with a 35% tax credit on investment, capped at 50 UTA — aimed at unlocking mining exploration, which according to biminister Daniel Mas could triple exploration activity by 2030. The Central Bank, for its part, raised its medium-term copper price assumption in the IPoM from USD 5.0 to USD 5.6 per pound, warning that the market will be in balance between 2026 and 2028 but will face a structural supply deficit from 2029 onward given the depletion of deposits and the absence of new greenfield projects.

Markets traded under the sign of geopolitical tension. The IPSA closed below 11,400 points, pressured by global selling triggered by the deterioration in the Strait of Hormuz, where the United States destroyed five Iranian tankers and Iran claimed to have retaliated. Brent crude surpassed USD 100 per barrel, dragging the dollar toward CLP 930, even as copper on the London exchange reached USD 6.7 per pound. The conflict has direct consequences for consumers' pockets: ENAP confirmed that on Thursday 93 and 97 octane gasoline will rise CLP 35 per liter, while diesel will accumulate an increase of CLP 89, the third consecutive upward adjustment. Since March, gasoline prices have accumulated a net increase of more than CLP 100 per liter. Economist Priscila Robledo of Fintual warned that projected inflation of 4.3% could fall "a bit short" by year-end, given the inertia of fuels in the CPI.

The most relevant medium-term risk identified by the IPoM is a possible slowdown in global investment in artificial intelligence, which could brake copper's rally and tighten global financial conditions for an economy like Chile's, highly dependent on the metal. SOFOFA, meanwhile, insisted this week that a four-percentage-point reduction in the corporate tax — currently at 27%, the ninth-highest in the OECD — would generate at least 80,000 additional direct jobs and an investment increase of around USD 6.7 billion between 2026 and 2030, though that proposal is not part of the MK4 sent to Congress.

What warrants monitoring in the coming weeks is the legislative progress of MK4, where the opposition has already expressed support for Fonavi but caution regarding the tax provisions; the August activity data, which will determine whether the third quarter confirms the technical recession implicit in the Central Bank's projections; and the trajectory of Brent, whose sustained level above USD 100 would complicate both the CPI and monetary policy, narrowing the monetary authority's room to continue cutting rates through the remainder of the year.