MercoPress. South Atlantic News Agency

Chilean Peso, stronger than ever

The Chilean peso is the sixth currency at world level in appreciating against the US dollar so far this year. However at Latinamerican level the Chilean peso ranks fourth behind the Brazilian Real, Uruguayan Peso and Mexican Peso.

The Chilean peso appreciation in the first seven months of 2005 reached 3,78% with the US dollar this week trading in Santiago money markets in the range of 542/545 pesos, after having hit 535 pesos last week, the strongest in the last five years.

At the other end is the Euro which has been loosing ground against the US dollar and has depreciated 9,41% in the same period.

Chilean exporters concerned with the strong local currency and its impact on overseas sales, visited this week President Ricardo Lagos who minimized the situation arguing that it was part of "the ups and downs of the international economy".

"The current price of the US dollar in Chile is influenced by the strong price for copper, the country's solid and growing export volumes, but on the other side we have crude at 65 US dollars the barrel, with prospects of further surges", pointed out the President.

Mr. Lagos recalled that Chile imports over 85% of its oil and gas and the appreciation of the Chilean peso against the US dollar has helped soften the consequences of higher crude and fuel prices.

However he recommended the Central Bank a "cautious" monetary policy to avoid a massive influx of US dollars, attracted by the interest rate differential.

"If the Central Bank raises interest rates significantly, we could be flooded with US dollars, which at the same time would put even more pressure on the exchange rate, forcing further appreciation of the Chilean currency".

President Lagos went on to say Chileans had to become accustomed to the success of "our overseas trade and healthy economy", which strengthens our currency and can have a negative side for exporters, but positive for many consumers, "otherwise the price of fuel would be even dearer".

Mr. Lagos also pointed out that current policy is effective until next March 30, which will give the incoming government to be elected next December 90 days to decide "what to do from then onwards".

Chilean market analysts coincide that a bull market for copper with record prices, the commodities export thrust together with the latest decisions regarding the Chinese Yuan, (Chile's main cooper client) have influenced the surge of the Chilean peso.

But they also highlight that the Chilean peso, compared to other Latinamerican currencies, even those which most appreciated such as the Brazilian Real or the Mexican peso, is more stable since Chile has by far the lowest country risk in the hemisphere, less than 50 points.

"In a small and open country such as Chile the currency will revalue and devalue according how the currencies of those competitors and trade partners move. Currently we're in a context where the US dollar has weakened against an important basket of currencies and obviously this has benefited the Chilean peso", said financial analyst Jorge Spichiger.