Chilean Peso Volatility at Lowest Since 1997 as Range Narrows

Volatility in the Chilean peso dropped to a 15-year low as the threat of central bank intervention kept the currency trading in a shrinking range.

The peso gained 0.1 percent to 472.42 per U.S. dollar at 12:10 p.m. in Santiago. Thirty-day volatility, a gauge of the magnitude of the currency’s average daily fluctuations over the period, dropped to the lowest level since June 1998 while 90-day volatility fell to the lowest since 1997. The currency has traded between 469 and 476.5 per dollar since Jan. 4 and between 471.7 and 473.5 for the past week.

Faster-than-forecast growth, stable interest rates and foreign investment have pressured the peso to appreciate while traders have refrained from betting on gains past 470 per dollar on speculation the central bank may act to stem advances. The currency reached the strongest level in 20 years against the country’s major trading partners in the first half of the month, according to central bank data.

“We have been in the same range for about 60 sessions,” said Cristian Donoso, a trader at Banchile Corredores de Bolsa SA in Santiago. “When the peso gains, there are concerns that the central bank may intervene; when it falls there’s a truck- load of buying.”

Chilean inflation expectations held close to the lowest level of the year today. Prices will rise 2.55 percent this year, according to traders in the forwards market for unidades de fomento, Chile’s inflation-linked accounting unit. The one- year breakeven inflation rate slid to 2.43 percent, the lowest since December.

The two-year swap rate in pesos fell two basis points, or 0.02 percentage point, to 5.16 percent today.

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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