MercoPress. South Atlantic News Agency

Chilean Central Bank purchases help to prop US dollar

The dollar closed in Santiago money markets at 456.6 Chilean pesos on Thursday, up from 434.1 Chilean pesos a week ago. This rapid gain comes in the wake of Chile's Central Bank's announcement last week that it would buy 8 billion US dollars over the course of the year.

Following the announcement, the dollar jumped 12.5 Chilean pesos on Friday and continued to rise by 3.3 and 6.6 pesos on Monday and Tuesday, respectively. The US dollar lost 3 pesos on Wednesday and again rose 3 pesos. As part of the intervention plan, the Chilean Central Bank bought 50 million US dollars on Monday, Tuesday, and Wednesday and again on Tuesday. The Bank will continue to purchase 50 million daily until May 9, and will make further purchasing decisions based on market conditions. Adding to the boost given to the dollar by this intervention, the president of the Central Bank, Jose de Gregorio, on Tuesday opened the possibility of lowering the interest rate. Although there was initial skepticism among analysts about the effectiveness of the Central Bank's plan, they now say that, so far, the market "believes in" the intervention. The dollar had consistently fallen in the last year, reaching a low of 431 pesos on March 18, nearly 100 Chilean pesos lower than at the end of 2006. The Central Bank's plan has effectively put a floor on the value of the dollar, but as yet there is no consensus among analysts and money managers with regard to its long-term effects.