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US dollar continues to drop against Chilean peso

Thursday, October 4th 2007 - 21:00 UTC
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The US Dollar dropped to its lowest value in relation to the Chilean Peso in over seven years on Monday, before slightly rebounding on Tuesday. Meanwhile, President Michelle Bachelet responded to this news by saying that the currency's continuing decline is a source of concern in Chile.

On Tuesday, the dollar was valued in international markets at $508.10 Chilean pesos, increasing from Monday's closing value of $507.00. Monday's value represented the worst exchange rate for the dollar since April, 2000, when the US dollar was worth only $505.50 pesos. Last week, in the wake of persistent worries fuelled by shake-ups in the US mortgage market, Finance Minister Andres Velasco held a private meeting with President Bachelet and her cabinet assuring them that Chile was prepared to weather an US economic crisis. However, on Tuesday, Bachelet told foreign correspondents that Chile is by no means immune from troubles with the dollar. "Of course, this situation is not ideal. We know that this has an impact on Chile's exporters," said the President. "This is not a subject that leaves us indifferent." Some analysts have voiced their concerns for the Chilean economy. They point to incongruence between the strength and growth of the Chilean Peso and the Brazilian Real against the dollar. The Peso has grown 5% against the dollar in 2007, while the Real has soared by 18.02%. Other economic indicators also show cause for worry. Measures of consumer confidence in Chile have dropped in recent surveys, following last month's increase of interest rates by the nation's central bank. Also, fears of inflation are rising, as the drop in the dollar's value is occurring simultaneously with an increase in the price of raw materials, such as Chilean copper. Many of Chile's exporters now fear that the increase in interest rates is not a sufficient remedy given the global economic climate, despite the pesos steady growth. Some industrialists warn that if the dollar continues to drop, more must be done by the government to support exporters who would be harmed. "If the dollar falls below 500 [Chilean pesos], the Central Bank of Chile must do something," said Manuel Bengolea of the corporate research firm FIT Research. "First, an announcement or verbal intervention may work. And if that is not enough, the bank should directly buy dollars." The Santiago Times

Categories: Economy, Latin America.

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