MercoPress. South Atlantic News Agency

Chilean peso looses 22% value in dollar terms in 6 months

Chile's Central Bank on Monday called an early halt to the 8 billion US dollars foreign-exchange intervention plan that has seen the peso depreciate 22% against the US dollar since April arguing the impact of international financial markets.

The central bank said the program, under which it bought 50 million US dollars daily was 70% complete and had achieved its purpose of reversing a sharp appreciation of the Chilean currency which was hampering the country's exports. "In recent days, there has been a significant deterioration in international financial markets. Due to this, the board has decided today to end its program to accumulate reserves," the bank said in a statement adding it had increased international reserves to the tune of 5.75 billion US dollars under the program. However the Central Bank said the Chilean economy remains prepared "to adequately face turbulence in international markets" and announced it would resume a program of currency swaps from Tuesday, which were replaced by the intervention program. The Chilean peso dropped on Monday to a three-year low as prices for copper -- Chile's main export -- fell below the 3 US dollars a pound threshold for the first time since 2007 and investors worried that a global financial crisis could deepen. The peso closed 2.25% lower at 551.50 pesos per dollar, compared with its close at 539.70 on Friday. It was the peso's weakest close since August 2005. The peso has now depreciated over 10% so far this year -date. The central bank said it would continue to use all instruments at its disposal to ensure financial stability and the normal flow of payments. The Chilean central bank has raised its policy basic interest rate to their highest levels in a decade in recent months in a bid to curb inflation which is running at its quickest since 1994. Annual inflation is currently over 9%, three times the bank's target. In related news a director from the Central Bank said there was concern "about local exposure to the failed US bank Wachovia Corp. which was absorbed by Citigroup, after falling victim to the credit crisis. "It is a bank which is ... very important for this country, because it is the bank which is involved in the most foreign trade credit lines to this country, and that obviously worries us" said Central Bank Vice President Jorge Desormeaux. But he also emphasized the central bank remains watchful of the evolution of the markets and "to any domestic manifestation of the international crisis," he told a conference of fruit producers in the Chilean capital. "Dollar liquidity and the cost of external financing in the US currency have risen in recent weeks and that is a manifestation of the crisis, but it is not greatly different from that seen in previous weeks," he added. Analysts see little chance of bank failures in Chile because of regulations imposed following a banking crisis in the early 1980s, but say the crisis will translate into increased costs and expect some credit to dry up.