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Chilean Peso Rises as Italian Budget Plan Boosts Europe Optimism

Dec. 5 (Bloomberg) -- Chile’s peso gained as stocks and the euro rose after Italian Prime Minister Mario Monti proposed a 30 billion euro ($40.3 billion) plan to reduce the country’s debt, boosting appetite for riskier assets such as emerging-market currencies.

Chile’s peso strengthened 0.2 percent to 513.55 per U.S. dollar from 514.45 per dollar on Dec. 2. The Bloomberg JPMorgan Latin American Currency Index advanced 0.5 percent.

The MSCI World Index rose 1.3 percent, extending its biggest weekly gain since March, after Italian borrowing costs fell to a one-month low. European optimism outweighed data released today that showed Chile’s economy expanded 3.4 percent in October, less than the 4.2 percent median forecast of analysts surveyed by Bloomberg and down from September’s 5.7 percent.

“That argues more for a central bank rate cut, but the external news is having more weight,” said Andres de la Cerda, a money markets trader at Bice Inversiones in Santiago. “The news from Italy is positive.”

Inflation-linked central bank and government bond yields fell today. The yield on inflation-linked central bank debt due in February 2021 fell four basis points to 2.68 percent. The yield on a similar bond due in August 2016 fell six basis points to 2.51 percent. The yield on a 20-year government inflation-linked bond fell 11 basis points to 2.93 percent.

The yield on the 10-year bond may fall to 2.4 percent, economists at Larrain Vial SA wrote today in a note to clients, reiterating an earlier forecast.

Offshore investors in the Chilean peso forwards market had a $5.1 billion net short position in the peso versus the dollar on Dec. 1, down from $5.9 billion a week earlier.

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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