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Chile Peso Volatility Falls to 14-Year Low as Central Bank Meets

The volatility of Chile’s peso dropped to the lowest in 14 years amid speculation the central bank may intervene to limit appreciation.

The currency was little changed at 471.44 per dollar at the close in Santiago. Thirty-day volatility, a gauge of the magnitude of the currency’s average daily fluctuations over the past 30 days, dropped to the lowest since June 1998.

The peso has traded in a narrowing range for more than two months on speculation the central bank may step in as a growing economy and stable interest rates add pressure on the currency to strengthen. The peso has traded within a band of 470 to 475 per dollar in March.

“The range keeps tightening,” said Eugenio Cortes, the head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago. “You have intervention on one side and the growing economy on the other.”

Chile’s central bank will probably leave its target lending rate at 5 percent for a 14th straight month, according to all 20 economists surveyed by Bloomberg.

Traders are paying a 1.67 percentage point risk premium for contracts granting them the right to sell the peso compared with options for buying the currency, one-month 25-delta option risk reversal rates show today. That is the lowest since August 2011. Delta measures the rate of change in an option’s value relative to moves in the underlying spot market.

International investors in the forwards market cut their net bet against the peso to $2.8 billion on March 12 from $3.8 billion on March 6, according to data published today by the central bank. Local investors, a category that excludes banks and is dominated by pension funds, reduced their net bet on the peso to $13.7 billion on March 12. They had the biggest bet on the peso of the year on March 11, with a $14.1 billion net bet on the currency.

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