Chilean Peso Gains After Offshore Investors Cut Short Positions

Chile’s peso recorded its second straight weekly gain as international investors cut bets against the currency to six-month lows and the central bank held its benchmark rate unchanged for an 11th month on faster-than-forecast growth.

The peso appreciated 0.2 percent to 473.98 per U.S. dollar at the close in Santiago. Its 0.6 percent advance on the week was the second-highest among major Latin American currencies tracked by Bloomberg after the Mexican peso.

Chile’s central bank yesterday left its benchmark interest rate at 5 percent even after the inflation rate fell to a two-year low. International investors in the Chilean peso forwards market reduced bets against the peso to $6.5 billion on Dec. 12 from $7.4 billion a week earlier, according to central bank data.

“People are starting to bet on rate rises next year and that’s a magnet,” said Felipe Alarcon, an economist at Banco de Credito & Inversiones in Santiago.

The central bank may raise rates as soon as the first quarter of next year, sooner than implied by swaps prices, economists at Banco Santander wrote today in a note to clients.

Consumer spending and investment are driving faster-than-anticipated economic growth while the strengthening peso helps tame inflation. The economy expanded more than economists estimated in five of the six months through October, the latest data available.

‘Fantastic’ Numbers

“Chile’s numbers are fantastic,” International Monetary Fund Managing Director Christine Lagarde told students at the University of Chile in Santiago yesterday. “Many countries around the world would be envious of the numbers you’ve got: high growth, controlled inflation, very low unemployment, a low deficit getting lower and very low debt. Wow.”

The peso had fallen yesterday for the first time in eight days. That reversed after a report showing Chinese manufacturing growth is on course to accelerate this month. The December reading for a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics was 50.9, compared to 50.5 for November. A number above 50 indicates expansion.

China is Chile’s biggest trade partner and bought more of the Andean country’s copper in October than the next four biggest markets combined. China’s copper buying accounted for more than 20 percent of all Chile’s exports.

Copper for March delivery rose as much as 0.9 percent to $3.6945 a pound on the Comex in New York.

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