Chile Peso Falls Most in Emerging Markets on Inflation Surprise

  • Slower-than-expected price rises weaken case for rate increase
  • Copper drops most in a week on signs of slack China demand

Chile’s peso fell the most in emerging markets after data showed prices rose less than economists forecast in September, undermining expectations for a central-bank rate increase next week.

The peso fell 0.6 percent as of 9:42 a.m. in Santiago to 683.41 per dollar, the worst performance among 24 developing-nation currencies. The two-year swap rate fell 0.08 percentage point to 3.72 percent, extending its six-day decline to 0.31 percentage point.

Consumer prices rose 0.5 percent last month, less than the 0.7 percent median estimate of analysts. The first negative inflation surprise in six months follows comments from the central bank that rate increases will be limited and comes after traders pushed back bets on higher borrowing costs in the U.S. The unanimous forecast of seven economists surveyed by Bloomberg is that Chile’s central bank will raise its benchmark interest rate by 0.25 percentage point on Oct. 15.

“The market expected inflation to be a bit higher and was pricing in a rate increase,” said Eugenio Cortes, the head of currency forwards at EuroAmerica in Santiago. “Possibly with this, and the delayed Fed rate increase, the market will begin speculating that it creates space for the central bank to delay by a meeting.”

Traders in the U.S. have slashed the probability of a U.S. Federal Reserve rate hike this year after two consecutive months of lower-than-expected employment. The International Monetary Fund recommends the Fed should hold off on rate rises until inflation accelerates, Jose Vinals, director of the fund’s monetary and capital markets department, said in an interview on Wednesday.

The price of copper, Chile’s biggest export, fell the most in a week on signs of weak demand from China, the biggest buyer. The metal declined 1.6 percent to $2.329 per pound for December delivery on the Nymex in New York.

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