Chile Peso Climbs as Bank Refrains From Third Straight Rate Cut

Chile’s peso posted its biggest gain in a week following the central bank’s decision to hold borrowing costs steady after two straight cuts as inflation accelerated to a 13-month high in November.

The peso appreciated 0.4 percent to 529.89 per U.S. dollar at the close in Santiago after falling on Dec. 3 to a two-year low. Only the South African rand and Peru’s sol appreciated more among emerging-market dollar counterparts today. Chile’s currency pared its drop this week to 0.7 percent.

Policy makers held the target lending rate at 4.5 percent yesterday after reductions of a quarter-percentage point last month and in October. The central bank’s decision matched most of the forecasts of economists surveyed by Bloomberg and traders tracked by the central bank.

“Part of the market expected there to be a surprise yesterday,” Cristian Donoso, a trader at Banchile Inversiones in Santiago, said by telephone. “Not us, but there were some people betting that the central bank would cut again, and that didn’t happen.”

While the Chilean economy expanded in October at the slowest pace since July 2011, consumer price increases accelerated last month to 2.4 percent as the peso traded at its weakest since 2011.

Foreign investors in the peso forwards market raised their net short position in the currency as of Dec. 11 by $6.2 billion to $12.4 billion since the central bank started lowering borrowing costs on Oct. 17.

Charts followed by traders indicated the two-year swap rate was due for a reversal. It was unchanged at 4.29 percent today after dropping through its lower Bollinger band Dec. 10. The two-year break-even rate, a projection of inflation, was at a three-month high of 2.82 percent today.

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