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Montevideo, November 17th 2018 - 17:27 UTC

Chile’s measures to weaken the Peso are working in the short term

Thursday, January 6th 2011 - 20:16 UTC
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Jose De Gregorio, President of Central Bank of Chile Jose De Gregorio, President of Central Bank of Chile

Chile's peso was operating Thursday at 495 to the US dollar after depreciating around 6% in two sessions on a 12 billion US dollars central bank intervention program announced this week.

The 12 billion USD purchase is Chile's central bank biggest-ever forex intervention aimed at taming the soaring peso, which at a 3-year high is hammering local exporters.

Chile's central bank thus joins Brazil and Colombia in taking measures to tame local currencies. They're all anticipating the ongoing consequences of the likely-prolonged, very low interest rates in the US.

Jose De Gregorio, President of Central Bank of Chile said “We're going to purchase dollars, and we're going to have more reserves. We're going to be much more prepared to confront any event involving the deterioration of international finance. At the same time, it's also going to help ease the sort of persistent pressure that we're under.”

The peso has appreciated more than 17% against the US dollar since the end of June, making it one of the strongest currencies in the region. It closed at a 32-month high against the dollar on Monday.

Juan Andres Fontaine, Chilean Economy Minister said “It's an exceptional case that the Central Bank has seen an opportunity to interrupt what could be a harmful exchange rate, a fall in the rate of the dollar that could end up being damaging to our capacity to compete”.

Local analysts say the announcement of the daily 50 million USD purchases came earlier than many in the market expected. It may trigger a sharp weakening of the local currency in the short-term.

But some question how effective the move will be in the long-term, given the dollar's weakness, exacerbated by the US Federal Reserve's move to buy hundreds of billions of dollars in government debt.

The Chilean economy supported by the soaring international copper prices and booming copper industry, of which the country is the main exporter, has seen the value of its currency balloon threatening other export sectors as the cost in pesos increases and income in US dollars decreases.
 

Categories: Economy, Latin America.

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