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CHILE: Santander Sees Policy Rate Reaching Neutral Level In Q4 2025

CHILE
EM BulletBulletGlobalEmerging Market NewsRegion
  • While Santander continues to expect a 25bp BCCh rate cut in December, in a scenario where the balance of risks is skewed downwards for activity and the Fed accelerates the pace of cuts, they see room for an additional adjustment in the policy rate by up to 50bp, closing the year at 4.75%. By 2025, they expect the policy rate to decline by up to an additional 100bp, reaching its neutral value of 4% at the beginning of the fourth quarter.
  • On the fiscal front, Santander notes that the government continues to move away from its deficit target. The MoF recently estimated a 2.0% of GDP fiscal deficit this year. With the deficit tracking at 3.9% of GDP on a 12-month basis in August, Santander says that to reach that target, it implies that what has been collected so far this year is 61% of the projection, while in the last 12 years the income up to August represents on average 66% of the income of the year, with a minimum of 63% (not counting 2021). If either of these two scenarios occurs, the fiscal deficit would be 3.6% of GDP or 2.6% of GDP, respectively.
  • Finally, tax revenues are projected to reach 24.3% of GDP by 2025, including 0.4% from the Tax Compliance Law. Santander says that from a historical perspective this seems high, considering that since 2000, revenues have averaged 22% of GDP, and have exceeded 24% less than five times.
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  • While Santander continues to expect a 25bp BCCh rate cut in December, in a scenario where the balance of risks is skewed downwards for activity and the Fed accelerates the pace of cuts, they see room for an additional adjustment in the policy rate by up to 50bp, closing the year at 4.75%. By 2025, they expect the policy rate to decline by up to an additional 100bp, reaching its neutral value of 4% at the beginning of the fourth quarter.
  • On the fiscal front, Santander notes that the government continues to move away from its deficit target. The MoF recently estimated a 2.0% of GDP fiscal deficit this year. With the deficit tracking at 3.9% of GDP on a 12-month basis in August, Santander says that to reach that target, it implies that what has been collected so far this year is 61% of the projection, while in the last 12 years the income up to August represents on average 66% of the income of the year, with a minimum of 63% (not counting 2021). If either of these two scenarios occurs, the fiscal deficit would be 3.6% of GDP or 2.6% of GDP, respectively.
  • Finally, tax revenues are projected to reach 24.3% of GDP by 2025, including 0.4% from the Tax Compliance Law. Santander says that from a historical perspective this seems high, considering that since 2000, revenues have averaged 22% of GDP, and have exceeded 24% less than five times.