March 29 (Bloomberg) -- Chilean central bank President Vittorio Corbo said the country's budget surplus is helping avert more strengthening of the peso, the currency that had the second- biggest gain against the dollar in the past year.

Corbo said higher government spending would spur inflation, eventually forcing the central bank to make faster and bigger rate increases. The peso has gained 10.3 percent in the past 12 months on surging inflows from record prices for copper, the country's top export.

``The main reason Chile has been able to navigate this situation, which has been favorable for the exchange rate, without a pronounced real appreciation, is because of the fiscal surplus,'' Corbo said today at a news conference in Santiago. ``If they were spending it, the only way to keep the economy from overheating would be with a more aggressive monetary policy.''

Corbo also said the central bank will probably revise upward its forecast for copper prices this year, as demand from China and the U.S. remains strong. In January, the central bank predicted copper prices would average $1.70 a pound this year, 43 percent below the current price.

Finance Minister Andres Velasco said today that the country's surplus rule, which restricts government spending when copper prices surge, will remain in place.

``The structural surplus rule says that long-term copper prices set our capacity for spending, and that price is key for fiscal policy,'' he said in an e-mailed statement today.

Chile's budget surplus more than doubled in 2005 to $5.4 billion, or 4.8 percent of gross domestic product.

The peso gained 0.4 percent against the dollar at 4:11 p.m. New York time to 532.50. Copper for delivery in May rose 1 cent, or 0.4 percent, to $2.4385 a pound on the Comex division of the New York Mercantile Exchange.

To contact the reporter on this story: Matthew Walter in Santiago mwalter@bloomberg.net

Last Updated: March 29, 2006 18:38 EST