MercoPress. South Atlantic News Agency

Chilean peso at record high rings alarm bells

Chile's Peso gained a 14- week high against the US dollar as expectations that higher interest rates and surging copper exports at record prices will spur increased inflows.

The peso rose on Wednesday 0.5% to 511.65 against the US dollar from 514.25 per dollar late Tuesday which is its strongest since trading at 510.75 on January 2. In 2005 the Chilean peso appreciated 12.1% against the US dollar.

This Wednesday copper for May delivery rose 2.75 cent or 1% to 2.7490 US dollars per pound on the Comex division of the New York Mercantile Exchange. Copper prices have more than quadrupled since the beginning of 2002.

The Central Bank overnight rate is forecasted to be lifted Thursday to its highest in four years to curb inflation in an economy that bank president Vittorio Corbo says is growing "above potential".

Chile grew at its fastest in eight years in 2005, spurred by record prices for copper, its top export.

But a stronger peso hurts profits for exporters that sell products abroad in dollars and concern has reached the Chilean Congress which has invited the president of the Central Bank Vittorio Corbo and Finance minister Andres Velasco to talk about the issue.

"We want an open and respectful dialogue" said the president of the Agriculture Committee Alberto Espina adding that if the Central Bank does not react the "exchange rate will drop to below 500 pesos to the US dollar, which is catastrophic, particularly for farm exports".

"We call upon the government to show social sensitivity, to remember that we have people working with the highest levels of efficiency but have no reciprocity from the administration", added Senator Espina emphasizing that "there's no social justice if two million Chileans live in a dramatic fringe situation which is forecasted to worsen in the coming weeks".

However analysts estimate that the Chilean Central Bank will address the issue in the coming weeks since the situation "can become politically unsustainable", probably creating a special fund with the surplus inflows to be invested overseas.