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CHILE: Santander Expects BCCh Rate Cuts To Continue At More Gradual Pace

CHILE
  • Following the upside surprise to October CPI, Santander sees inflation closing this year at 4.7%. Cost factors, such as the increase in electricity tariffs, will continue to impact inflation in the short term. However, in the medium term, they still expect a rapid convergence to the inflation target. Incorporating the higher FX rate, fuels and indexation, they see inflation close to 5% in Q1, before it declines as the increases in electricity rates appear in the comparison base.
  • Santander expects BCCh rate cuts to continue, but more gradually. Macroeconomic developments remain within expectations from the last IPoM, but factors such as the strength of the dollar and uncertainty over US policies could slow the easing cycle. Santander anticipates a further 25bp cut to 5.0% in December, followed by a pause in January, before another cut in March. Overall, they now forecast 75bp in rate cuts next year, to 4.25% by year-end, even though the market is more sceptical about reaching those levels.
  • Meanwhile, the fiscal deficit is expected to close between 2.5% and 3% of GDP this year, but unprecedented cuts in the 2025 Budget provide better prospects for next year. Santander anticipates that the fiscal deficit will narrow 2.0% of GDP in 2025, with gross debt reaching 42.5% of GDP, still below the prudent level of 45%.
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  • Following the upside surprise to October CPI, Santander sees inflation closing this year at 4.7%. Cost factors, such as the increase in electricity tariffs, will continue to impact inflation in the short term. However, in the medium term, they still expect a rapid convergence to the inflation target. Incorporating the higher FX rate, fuels and indexation, they see inflation close to 5% in Q1, before it declines as the increases in electricity rates appear in the comparison base.
  • Santander expects BCCh rate cuts to continue, but more gradually. Macroeconomic developments remain within expectations from the last IPoM, but factors such as the strength of the dollar and uncertainty over US policies could slow the easing cycle. Santander anticipates a further 25bp cut to 5.0% in December, followed by a pause in January, before another cut in March. Overall, they now forecast 75bp in rate cuts next year, to 4.25% by year-end, even though the market is more sceptical about reaching those levels.
  • Meanwhile, the fiscal deficit is expected to close between 2.5% and 3% of GDP this year, but unprecedented cuts in the 2025 Budget provide better prospects for next year. Santander anticipates that the fiscal deficit will narrow 2.0% of GDP in 2025, with gross debt reaching 42.5% of GDP, still below the prudent level of 45%.