Chile Peso Falls as Slowing Inflation Spurs Intervention Concern

Chile’s peso depreciated as a report that showed inflation at the slowest pace since 2010 fueled speculation the central bank may intervene to stem the currency’s gains.

The peso fell 0.2 percent to 472.14 per U.S. dollar at the close of trading in Santiago after earlier touching a three-month high of 469.10. It has strengthened 1.5 percent this year, the best performance among 25 emerging-market currencies tracked by Bloomberg.

Consumer prices were unchanged in December from November and annual inflation slowed to 1.5 percent. Data published yesterday by the central bank showed that the economy grew 5.51 percent in the 12 months through November and the country’s trade surplus unexpectedly reached a 20-month high in December.

“Inflation reinforced the idea that local fundamentals are solid,” said Alejandro Araya, a currency trader at Banco Santander Chile in Santiago. “The idea that the central bank will have to adjust rates is ever closer and the dollar keeps falling. The question is at what point does the central bank intervene. Below 470 pesos per dollar the risk-return changes because of the chance of intervention.”

The central bank last intervened in the currency market in 2011, buying $12 billion of U.S. dollars to weaken the peso.

Finance Minister Felipe Larrain today said the government was monitoring the exchange rate and shared exporters’ concerns about the strength of the currency.

“Based on economic fundamentals, the peso should have been at this level for a while,” said Andres de la Cerda, a trader at Bice Inversiones in Santiago. “The big question is what the central bank will do.”

One-year breakeven inflation rose seven basis points today to a seven-week high of 2.8 percent. The two-year rate was little changed at 2.79 percent.