Chile Peso Rises Most in Emerging Markets as Inflation Quickens

Chile’s peso surged with swap rates after a report showed the highest annual inflation rate in five years, damping speculation that the central bank will lower borrowing costs this month.

The peso advanced 2.2 percent to 553.05 per U.S. dollar at 12:30 p.m. in Santiago, the biggest increase on a closing basis since October 2011. The gain was the largest among 24 emerging-market currencies tracked by Bloomberg. The two-year swap rate rose nine basis points, or 0.09 percentage point, to 3.78 percent, the biggest increase since August.

Swap rates climbed on speculation that policy makers will hold the target lending rate at 4 percent on May 15 after holding it steady last month and cutting it by a quarter-percentage point in February and March. The government reported that consumer prices rose 4.3 percent in the 12 months through April after climbing 3.5 percent in the prior month. It was the first time inflation exceeded the 2 percent to 4 percent target range since February 2012.

“The central bank is concerned about growth, but this does reduce the possibility of a cut in May,” Flavia Cattan-Naslausky, a markets strategist at Royal Bank of Scotland Group Plc, said by phone from Stamford, Connecticut.

Eamon Aghdasi, a strategist at Societe Generale SA in New York, recommended today in a research note that investors use nondeliverable forwards to bet that the peso will strenghten to 538 per U.S. dollar.

Foreign investors in the peso forwards market had a $14.9 billion net short peso position on May 6, compared with $13.3 billion a month earlier.

Cattan-Naslausky remains bearish on the peso because she still expects the Chilean central bank will cut borrowing costs even if it holds them steady in May.

The government reported last week that the unemployment rate increased to 6.5 percent in the first quarter, the highest level since 2012 and above the 6.3 percent median forecast of analysts surveyed by Bloomberg.

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