Chile’s peso slid after central bank President Rodrigo Vergara raised the prospect of capital controls to mitigate the flood of dollars from the U.S. Federal Reserve’s quantitative easing program.
The peso depreciated 0.1 percent to 471.25 per dollar. It had earlier appreciated to 468.35 per dollar as copper gained in New York.
Fed Chairman Ben S. Bernanke’s plan to fight unemployment by buying $40 billion of mortgage bonds a month may mean emerging market currencies appreciate, producing imbalances in small, open economies, Vergara said. While Chile’s central bank can buy dollars or introduce capital controls, premature intervention risked being ineffective, he told a conference in Santiago.
“The remark about being wary of premature intervention is a sign that they are definitely studying it,” said Felipe Alarcon, an economist at Banco de Credito & Inversiones in Santiago who used to work at the central bank. “With the QE3 comment it’s a chronicle of a death foretold. We can’t fight with conventional measures against the tide of dollars coming our way.”
Selling local currency bonds to offset the extra money being added to the financial system in a currency intervention could push up the cost of the measure, eating into the central bank’s balance sheet, Vergara said. His remarks were posted on the central bank’s website.
Copper rose on speculation sliding profits for industrial companies will spur stimulus measures in China, the world’s largest consumer of the metal and the biggest buyer of Chilean copper.
Copper for December delivery rose 1 percent to $3.746 a pound on the Comex in New York.
International investors in the Chilean peso forwards market increased their short peso position to $9.2 billion on Sept. 25 from $8.8 billion a day earlier, according to central bank data.