MercoPress. South Atlantic News Agency

Chilean exporters howl as US dollar falls to below 500 pesos

US dollar slipping and with no end on sight

The US dollar continued on Tuesday its rapid erosion and closed at 498 Chilean pesos, its lowest value against the local currency since 1999. So far this year the Chilean peso has appreciated 6.41% against the US dollar compared to 3.95% for the twelve months of 2006.

The 500 Chilean pesos threshold was ruptured in last Friday's trading and the tendency confirmed during Monday's trading. The dollar's value has been affected by large amounts of currency in the Chilean market and expectations of higher interest rates in Chile when the Central Bank Monetary Committee meets next Thursday. "US dollar purchases have fallen considerably in recent days and this situation is expected to remain until after Thursday, since the differential rate with the US dollar is forecasted to increase", said a money market analyst in Santiago. Currently the Chilean basic interest rate stands at 5.75% which is one percentage point over the US rate, which makes the Chilean currency more attractive for foreign investors. But the US dollar's continued depreciation represents bad news for Chile's exporters, who have costs in pesos and receive profits in devalued US dollars. Finance minister Andres Velasco said the strength of the Chilean peso against the US dollar is caused by a global depreciation of the US currency but pointed out that in Chile "the impact is lesser" than for other economies. "The fluctuations we've seen in Chile are far more contained compared to what is happening in other emerging markets as well as in the world's main economies", added Velasco. But the Chilean Federation of Fruit Producers and the Association of Exporters sent a letter to President Michelle Bachelet requesting an "urgent" appointment to consider the very serious situation. "This is a message for the Finance minister, this is no longer a cold, and the fruit exporting sector has caught the avian flu "said Rodrigo Echeverria president of the Fruit Federation. "It's time to act. Precise and clear steps are needed. The costs of the currency appreciation must be fairly shared if the country pretends not be mono-dependent of mineral commodities", said Ronald Brown from the exporters union. "Let's hope the Central Bank doesn't exaggerate the situation this week by further hiking local interest rates", he added. Chilean authorities are also concerned about the rate of inflation, which can be contained with higher interest rates. The Chilean Central Bank original target at the beginning of the year was for a US dollar averaging 510 Chilean pesos during 2007. "If the dollar remains below the 500 benchmark the Central Bank must do something. First, an announcement or verbal intervention may work. But if that is not enough, the bank should directly buy dollars", said money market analysts.