MercoPress. South Atlantic News Agency

US dollar dips in Chile but “should rebound” to 500 pesos

The US dollar in the Chilean money market fell back to 480 pesos on Thursday after having reached 490 on Wednesday following on several days of gradual recovery.

Chilean inflation in May, 1.2%, and the growth of the economy in April, 4.8%, both well above experts' estimates, have surfaced fears of an interest rate hike by the Chilean Central Bank in its coming meeting. The US Fed rate is currently 2% and Chile's Central Bank basic rate 6.25%. The appreciation of the Chilean currency against the greenback has therefore reached in the first five months of 2008, 3.62% compared to 6.44% for the whole of 2007. May's 1.2% consumer price index increase means that inflation in the last twelve months has reached 8.9% according to Chile's Statistics Institute, INE. "The CPI of May which is certainly not good coupled with higher growth than expected opens the door for an interest rate hike of possibly 50 basic points", said a Santiago money market operator. Besides experts were expecting the Chilean economy to expand at an annualized 3.6% but the April percentage was 4.8% compared to the same month in 2007. "These numbers flooded the market with US dollars since a greater gap between local interest rates and those of the US generate expectations of a greater influx of dollars. On Thursday foreign money trading in Santiago reached 1.2 billion US dollars compared to the 928 million of Wednesday. However money analysts in Santiago expect the US dollar to keep appreciating in the local market against the Chilean peso since the Fed has hinted there won't be any further rate cuts, inflation has become the main challenge and the recession in the US seems to be relatively mild. In this scenario the US dollars is expected to be in the range of 500 to 520 Chilean pesos by the end of 2008.