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Chile Peso Trades Near Two-Week Low on Dollar-Buying Speculation

Chile’s peso traded near a two-week low on speculation the central bank may lay the groundwork at its meeting today for a possible program of dollar purchases to contain the local currency.

The peso was little changed at 483.40 per U.S. dollar at 2:10 p.m. in Santiago after touching 484.61, the weakest intraday level since Aug. 2. It has still risen 7.5 percent this year, the biggest gain among all of the world’s currencies tracked by Bloomberg after the Hungarian forint.

Chile’s exchange rate versus its five largest developed trading partners, the U.S., Japan, the U.K., Canada and the euro region, is close to the levels that prompted central bank interventions in 2008 and 2011, according to estimates from economists at Bank of America Merrill Lynch and Banco de Credito e Inversiones. Before the peso started falling Aug. 10, it was the world’s best performer, leading industry groups including the fruit exporters association to express concern.

“There’s intervention noise,” said Cristian Donoso, a trader at Banchile Corredores de Bolsa SA in Santiago. “We’re near the 2011 intervention level, and exporters are complaining about their businesses being damaged.”

The central bank will probably leave its target lending rate at 5 percent today for a seventh straight month, according to all 17 economists in a Bloomberg survey.

Inflation Projections

Breakeven inflation, a projection of the pace of consumer price increases implied by the difference between nominal and inflation-linked yields, rose today, with the two-year rate climbing 11 basis points to 2.89 percent, the highest since May 24 on a closing basis.

Chilean inflation may end the year at about 2.1 percent, Bank of America Merrill Lynch wrote today in a note to clients, with gasoline and food prices probably rising this month. The firm doesn’t expect the central bank to lower the target rate in August or September.

“In fact, we see risks biased toward no cuts at all in 2012, although events in the U.S. and Europe could make it premature to rule cuts out,” analysts at the firm wrote.

Banco Santander SA recommended today in a research note that investors bet Chilean inflation-linked yields will fall, allowing them to profit from any future reductions in central bank rates as well as from an increase in inflation expectations.

Chile’s government said today in the official gazette that it reduced import duties on wheat and wheat flour as part of its policy of mitigating price fluctuations.

Local institutions reduced their long peso position in the Chilean peso forwards market to $15.9 billion on Aug. 13, according to central bank data. International investors had a $7.7 billion short peso position.

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