Chile, Peru Currencies Lead Global Declines on Rate Cut Outlook

Chile’s peso and Peru’s sol fell the most among 31 major currencies on speculation the Andean nations’ central banks will lower borrowing costs this year to bolster economic growth.

The peso weakened 0.5 percent to 553.37 per U.S. dollar at the close of trading, the weakest since June 20. The sol slid 0.4 percent to 2.786 per dollar, the biggest drop in a month.

Trading in interest-rate swaps indicates that Chilean policy makers will reduce the target lending rate to 3.5 percent from 4 percent by October before raising it in the second half of next year. For Peru, three of 14 analysts surveyed by Bloomberg predict a reduction in the benchmark rate to 3.75 percent from 4 percent on July 10 and one analyst expects a cut to 3.5 percent. The rest forecast no change.

Peru’s “central bank won’t cut just yet, but it may do so in the coming months and maybe the market is pricing that in,” Antonio Diaz, a trader at Banco Internacional del Peru SAA, said in a phone interview from Lima.

Chile’s one-year swap rate fell 0.03 percentage point to a three-year low of 3.62 percent today after the national statistics agency said inflation slowed more than economists forecast to 4.3 percent last month. The economy expanded 2.6 percent in the first quarter from a year earlier, the slowest pace in four years.

All three analysts surveyed by Bloomberg forecast that policy makers in Chile will hold the target lending rate at 4 percent on July 15.

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