Chile's Peso Gains as Fastest Growth in Five Years Offsets Europe Concerns

Chile’s peso rose as the strength of the country’s economy and prospects of rising interest rates offset declines in global stocks and copper, Chile’s main export.

The peso appreciated 0.2 percent to 496.85 per U.S. dollar from 497.77 per dollar at yesterday’s close. It earlier weakened to 499.25 per dollar.

The Dow Jones Industrial Average declined 0.6 percent, while copper for delivery in December fell 0.8 percent in New York to $3.472 a pound, amid concern that Europe’s debt problems will worsen and lenders need more capital to compensate for holdings of bonds from the weakest economies in the region. Chile’s economy expanded at the fastest pace in five years in the three months through July, according to central bank data published yesterday, as it rebounds from last year’s recession and February’s earthquake.

“We’re still going to have some factors pushing the peso higher in the short term, starting with very strong economic activity,” said Cesar Perez, an economist at Celfin Capital SA in Santiago. “Today we saw negative performance of external stock markets and yet we broke through the 497 level, which shows the currency has a degree of independence. Copper fell, but it’s still almost $3.50 a pound, so terms of trade will add momentum to the peso.”

Quarterly Gain

Chile’s peso appreciated 9.9 percent this quarter as economic growth supported expectations the central bank will continue raising rates. Chilean imports jumped 49 percent in August from a year earlier to the highest level since October 2008, according to a central bank report released today, reflecting demand from factories that are ramping up production and consumers benefitting from economic growth and falling unemployment.

The central bank last month raised its benchmark rate by a half-point for the third straight month, saying in a statement they would continue to remove the monetary stimulus at a pace determined by economic conditions.

The inflation forwards market is pricing in a 0.03 percent increase in consumer prices for August, according to Banco Santander SA prices.

The National Statistics Institute will publish last month’s inflation data tomorrow at 8:00 a.m. New York time. The median forecast of 13 economists in a Bloomberg survey is that prices rose 0.1 percent.

To contact the reporter responsible on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

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