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Chile Rate Swaps Fall After Factory, Retail Reports; Peso Rises

March 28 (Bloomberg) -- Chilean rate swaps fell after reports showed manufacturing and retail sales rose less than analysts forecast, spurring speculation that the central bank will refrain from increasing borrowing costs.

The five-year swap rate dropped four basis points, or 0.04 percentage point, to 5.25 percent at 4:05 p.m. in Santiago, the lowest level on a closing basis since November.

Traders aren’t projecting an increase in the 5 percent target lending rate until the end of 2014 after betting yesterday on an increase within 18 months, according to research from Banco de Chile.

“A flat curve is a good way to see it,” Alberto Ramos, an economist at Goldman Sachs Group Inc., said in a phone interview from New York. “If we see another couple of prints like today’s, that could reduce the fear of overheating.”

Retail sales rose 7.4 percent and manufacturing increased 0.9 percent in February from a year earlier, missing the 8.2 percent and 2.5 percent increases forecast by analysts surveyed by Bloomberg. The central bank has left benchmark borrowing costs unchanged since January 2012.

The peso rose today a two-week high as a reopening of banks in Cyprus buoyed the global economic outlook and eased demand for the dollar as a refuge from Europe’s debt crisis. The peso appreciated 0.2 percent to 471.67 per U.S. dollar at the close in Santiago, the highest level since March 14. The currency gained 1.6 percent in the quarter.

“The reopening of banks hasn’t been chaotic in Cyprus, and that is causing people who sought refuge in the dollar to reduce their positions,” Alexis Osses, an analyst at XDirect Chile Ltda., said in a phone interview.

Peso Volatility

Volatility in the Chilean peso is at the lowest level in 15 years as it trades in a narrowing range. Speculation that the central bank will intervene to weaken the currency has prevented it from appreciating while faster-than-forecast economic growth and stable interest rates warded off declines.

The euro rose 0.3 percent to $1.2819 today as banks in Cyprus reopened with a 300-euro daily limit for cash withdrawals after being closed since March 16. The price of copper, Chile’s main export, fell 1.1 percent in New York.

To contact the reporters on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net; Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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