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New record for copper but US dollar in Chile keeps falling

Monday, May 7th 2007 - 21:00 UTC
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Copper prices rose to a ten-month record high Friday of US$ 3.73 per pound at the London Metal Exchange. This helped push the value of the U.S. dollar in Chilean money markets to new lows and led speculation about the effects this might have in the country's economy.

The dollar closed Friday at 520.5 Chilean pesos, the lowest in almost one year after it dropped to 519 pesos on May 16, 2006. According to Chile's Copper Commission (Cochilco), the mineral's high value coincided with the 3.5% drop in the world stock inventories. The organization expects the copper price to keep rising but at a slower pace than that experienced since last February. This rise will continue to affect the dollar, and economic analysts expect Chilean banks to intervene in order to avoid speculation once the currency hits the 515 pesos bottom limit. BanChile economist Raphael Bergoeing said the Central Bank will only give a verbal warning once the dollar reaches that mark. But he added that, in his opinion, any Central Bank action will only have a temporary effect if the currency keeps dropping in the international markets as well. Santiago Chamber of Commerce general manager George Lever predicted the dollar will fall to as low as 510 pesos. "The new fiscal regulation forces to invest the copper surplus outside of the country, reducing the intervention possibility," he said. Adolfo Ibañez University professor Christian Johnson predicts the US dollar could even drop to 500 Chilean pesos. "After this, the Central Bank would give warning signs qualifying the copper rise as a temporary phenomenon which would propel the dollar value by a change in the market's expectations," he said. Still, most economists believe the dollar will recover its strength by the end of the year and predict it will be valued at between 530 and 540 pesos. On the other hand, copper is expected to reach another record high before dropping gradually. "The copper price has risen way too high and it will most likely drop in a short term. That should take pressure off the currency exchange rate," said Cristián Gardeweg, from the Celfin consulting group. By Paulo Guzmán Falcón The Santiago Times

Categories: Economy, Latin America.

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