MercoPress. South Atlantic News Agency

Copper factor boosts the Chilean peso

The Chilean currency experienced Monday a new 0,6% appreciation in Santiago's money markets reaching 526 pesos to the US dollar, the strongest since June 2000.

The robust performance of the Chilean economy plus a weakened US currency in global markets has consistently revalued the Chilean peso against the US dollar, according to Santiago market analysts.

"Looking at the volumes operated I believe the strengthening of the Chilean currency can be tracked not only to very favourable market expectations but also because brokers are leaving the US dollar and betting on the Chilean peso", said Eduardo Orpis a local analyst from Finances Consulting.

So far this year, (nine months), the Chilean peso has appreciated 5,74% against the US dollar compared to 6,5% for the whole of 2004.

However other analysts point out that the most important factor is the international price of copper which during September marked several records.

"Even when the US dollar is bouncing back following the unexpected performance of US industry, which anticipates a further rise in interest rates from the Federal Reserve, the factor is copper", said Ramiro Rojas from Consultores Asociados.

"When the US dollar rises, commodities tend to weaken, but copper has reinforced all of the Chilean economy's fundamentals and keeps improving the country's trade relations. The country's balance sheet is doing wonderfully", added Mr. Rojas.

Three months copper contracts have been operating in the range of 1,74 to 1,77 US dollars the pound, a historic record, pushed by labour disputes in Falconbridge, Canada and a strong reduction in London inventories.

But the excellent performance of the Chilean economy is also showing signs of overheating and September's inflation which will be announced Tuesday is expected to be well above the tendency of the last few months.

Analysts forecast that fuel and perishable goods prices could have doubled September's inflation index compared to the 0,3% of last August.

In spite of the Chilean government efforts to contain the impact of fuel prices, they did surge again in September. Chile imports virtually all of its fuel demand. Chilean Central Bank president Vittorio Corbo admitted that international oil prices are exerting pressure on inflation but insisted that the bank's target is 3% in 24 months.

Inflation last year was 2,4% and in 2005 is forecasted to reach 3,8%.