MercoPress. South Atlantic News Agency

Piñera promises actions to weaken the Chilean peso in next year’s budget

Finance minister Felipe Larrain announced lower level of fiscal spending

Chilean president Sebastian Piñera on Thursday reiterated that next year's budget would aim to ease a rapidly appreciating currency that is hurting the country’s exporters.

Chile is a major producer of fruit, wine and wood pulp and those sectors have urged authorities to curb the Peso, which is trading at over two-year highs and is eating away their revenues paid in dollars abroad.

”We want to maintain macroeconomic equilibrium and strengthen the exchange rate (dollar against peso), which is very important for our agriculture and exporter sectors,” Piñera told reporters, only hours before he is scheduled to reveal the details of the 2011 budget.

Finance Minister Felipe Larrain has said the government aims to slow the pace of fiscal spending to allow the peso to weaken in the world's top copper producer. The foreign exchange was trading on Thursday at 483.90/484.40 per dollar.

A rise in Chilean interest rates amid a sluggish global economic recovery has lured scores of investors and their dollars into the local market, adding value to the peso which has strengthened nearly 13% since the beginning of July.

However an analyst from JPMorgan estimates the Chilean central bank will not intervene in the exchange market unless the US dollar reaches 445/450 Chilean pesos.

Analyst Vladimir Werning said that intervention in Chile is “a mobile target and all indicates that that level has fallen from 460 pesos to 445/450 pesos to the US dollar”. He added that the peso is currently 7% weaker than in 2008 when the central bank decided to act in support of the US dollar.