MercoPress. South Atlantic News Agency

Chile's currency boosted by copper and interest rate

Chile's currency experienced its biggest gain since May after rising demand for copper, Chile's top export and, pushed the nation's exports to a record in the second quarter.

The Chilean peso is up 9.4% in 12 months as the price of copper rallied 25% to a 16-year high last month, fueling a 46% export increase in June. Investor expectations that the Central Bank would increase the benchmark lending rate to a three-year high, as effectively happened, also raised demand for the currency, said investor Carlos Olivares at AFP Cuprum SA

''Chile has good fundamentals,'' said Olivares, who helps manage 10.9 billion US dollars at Chile's third-biggest pension fund. ''There's demand for commodities in Asia, especially in China.'' The peso gained 0.6% to 579.35 per dollar Tuesday from 582.65 late Monday.

Prices for copper have climbed 4.4% since July 1, increasing revenue for Chile, the world's biggest copper producer. Exports climbed to a record 9.86 billion US dollars in the second quarter, reported the Central Bank in Santiago.

The peso also gained Tuesday in advance of the Central Bank's increase of its benchmark lending rate to a three-year high of 3.5%. Raising the rate bolsters the peso by keeping peso-denominated securities attractive to investors as rates rise in the U.S., Olivares said.

''It's good for the peso if we stay with the same rate differential'' said Mr. Olivares.

Policy makers last month held the rate steady at 3.25%, snapping two straight months of increases. The bank has increased it from a record low of 1.75% in September.

"Investment has kept growing with unexpected vigor, while employment has increased at a high rate which favors consumers' dynamism", said in a release the Central Bank adding that retail inflation is above annual estimates given the incidence of a surge in fuel prices, certain public utility rates and some perishable goods.

The Chilean economy grew 6.4% in May, its fastest pace of expansion this year and is expected to expand about 6% in 2005 according to government forecasts, compared to last year's 6.1%, the fastest expansion in seven years.

"The Monetary council reiterates its commitment to conduct monetary policy in such a way that inflation projections remains in the annual 3% current policy horizon for the next 12 to 24 months", emphasized the Central Bank.