Chile’s Economy Moving Forward but Still Faces Risks

In a report released on Tuesday, Chile’s central bank stated that the economy is on a broad path to recovery, although certain sectors are still struggling and financial market depth has not fully recovered from the impact of the coronavirus pandemic. The commercial, construction, and real estate sectors were highlighted as areas that have fallen behind and are at risk of increased defaults.

The bank emphasized that the external economic environment remains the primary source of risk for local financial stability. While some companies and individuals have shown improved finances, other sectors are still facing challenges. Despite an increase in the number of people failing to meet mortgage payments, overall household finances are stabilizing due to rising incomes and decreased financial burdens.

The report stressed the importance of strengthening the resilience of local agents and the domestic financial market in the face of external macroeconomic risks. The document also highlighted risks related to uncertain U.S. monetary policy and rising global debt levels. Chile’s inflation rate, which peaked in 2022, has been gradually converging towards the bank’s target of 3%, prompting the bank to lower its benchmark interest rate.

Following the release of the report, the central bank board decided to maintain capital requirements for risk assets at the same level as the previous year, in an effort to enhance the economy’s resilience to severe stress scenarios. This decision was made to help support the ongoing recovery of the Chilean economy