Chile Peso Poised for Third Annual Gain in Four Years on Economy

Chile’s peso was headed for its third annual rally in four years as economic growth beat forecasts, inflation slowed and the price of copper rose.

The peso appreciated almost 0.1 percent to 479.63 per U.S. dollar at 11:09 a.m. in Santiago, extending its advance in 2012 to 8.3 percent, the biggest among 25 emerging-market counterparts after the currencies of Poland, Hungary and Colombia. The peso climbed 4.6 percent in the second half of the year, the most among major Latin American currencies. Copper, Chile’s main export, has risen 4.5 percent this year.

Chile’s currency also strengthened as the nation’s interest rates attracted investors who were able to profit by borrowing in dollars and investing in pesos. Chile’s central bank has left its benchmark rate at 5 percent since January, compared with the U.S. target of zero to 0.25 percent.

“The difference between local and U.S. rates means its more attractive to invest in Chile than other countries,” said Francisco Schneider, the head of foreign exchange at Celfin Capital SA in Santiago. “You can make more money in Chilean deposits. The high price of copper, the strong, stable economy and low inflation also make it attractive to invest here.”

The currency should trade in a range of 470 to 500 per dollar next year, Schneider said.

Gross domestic product expanded 5.7 percent in the third quarter from a year earlier, beating analysts’ estimates for a second straight quarter.

Unemployment in Chile fell to 6.2 percent in November , the lowest since the National Statistics Institute reset its index in 2009, and retail sales rose 10.7 percent last month from a year earlier, reports showed today.

International investors in the peso forwards market lowered their bets against the currency to $5.1 billion on Dec. 26 from $9.8 billion on June 29. At the end of 2011 international investors had a $6.1 billion short peso position, according to data published by the central bank.

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

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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