Chile Peso Hits 12-Month High on Copper Gain, Vergara Comments

Chile’s peso rose to a 12-month high as copper advanced and after central bank President Rodrigo Vergara damped speculation policy makers would start buying dollars in the foreign-exchange market.

The peso, the best-performing currency in Latin America this year and the biggest winner in the world after the Hungarian forint, appreciated 0.2 percent to 474.41 per U.S. dollar, the strongest closing level since September 2011. Copper, Chile’s biggest export, rose as high as $3.7125 a pound in New York. International investors in the peso forwards market cut bets against the peso to a two-week-low $9.5 billion on Sept. 7.

Vergara indicated he was against trying to weaken the peso after it reached levels similar to those that sparked last year’s intervention, telling senators Sept. 5 that such moves have a “significant cost” and “could lead to confusion.”

The signals “were that the central bank wasn’t looking to step in at these levels and that has helped the peso to break lower,” said Clyde Wardle, a currency strategist at HSBC Holdings Plc in New York.

The peso may appreciate to between 450 and 460 per dollar, a level that would provoke a central bank intervention, Leonardo Suarez, chief economist at Larrain Vial SA, wrote today in a note to clients. The bank may buy $60 million a day and as much as $15 billion in total, Suarez wrote. The bank is more likely to start buying dollars than to impose capital controls, Suarez wrote.

Finance Minister Felipe Larrain indicated in an interview today in London that he would rely on fiscal measures to slow the peso’s gains.

Target Rate

The central bank has maintained its benchmark interest rate at 5 percent since January even as regional peers have lowered rates. It will continue to do so for the next two years, according to a survey of economists published today by the central bank.

The two-year swap rate rose one basis point today to 4.88 percent. Two-year breakeven inflation fell five basis points to 2.96 percent after the lower house of Chile’s Congress approved legislation to make the government’s fuel-price stabilization program, known as Sipco, more flexible.

“More than anything it’s speculation about the effect Sipco could have on the price of gasoline,” said Patricio Aliaga, a trader at Scotiabank in Santiago.

Premium gasoline prices would rise by 17.4 pesos a liter and lower-grade gasoline would increase by 8.9 pesos without the new legislation, Deputy Finance Minister Julio Dittborn said yesterday in an e-mailed statemenmt. The Senate is scheduled to vote on the changes tomorrow.

-- With assistance from Randall Woods in Santiago and Karen Eeuwens in London. Editor: Dennis Fitzgerald

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