March 25th, 2008
Chile’s Peso Advances on Interest Rate Outlook Copper Rally
Chile’s peso rose the most in a week on speculation the central bank will keep raising its key lending rate while the Federal Reserve cuts borrowing costs, increasing the appeal of the South American nation’s fixed-income assets.
An increase today in the price of copper, Chile’s biggest export, also helped boost the currency. The 4 percentage-point difference between the Chilean and U.S. benchmark lending rates, along with gains in copper, has helped fuel a 10.8 percent rally in the Chilean peso this year.
“The market in the past few days was too rushed into expecting the peso’s strengthening trend had come to an end,” said Rodrigo Aravena, an economist at Banchile Inversiones in Santiago. “The U.S. will need to continue to cut rates and inflation in Chile may force the central bank to raise them further, boosting speculation the peso will continue to appreciate.”
Chile’s peso advanced 0.9 percent to 450 per dollar at 3:59 p.m. New York time from 454.04 yesterday. The currency’s gain this year is the second-biggest after the Czech koruna among 26 emerging-market currencies tracked by Bloomberg.
The yield on Chile’s 6 percent bonds due in March 2017 was little changed at 6.54 percent, according to HSBC Chile. The price rose 0.016 centavo to 97.428 centavos per peso.
Copper Rally
Copper futures for May delivery rose 1.6 percent trading on the New York Mercantile Exchange as concern eased that financial- market turmoil will curb demand for metals and other raw materials. Copper has advanced 21 percent this year.
The Fed last week lowered the benchmark U.S. lending rate three-quarters of a percentage point to 2.25 percent as part of an effort to shore up growth in the world’s biggest economy.
Chile’s central bank will lift its key rate to 6.5 percent at its April 10 meeting should consumer prices rise more than 1.1 percent in March, Aravena forecasts. Annual inflation accelerated to an 11-year high of 8.1 percent in February, double the upper end of the central bank’s 2 percent to 4 percent target range.
Concern the U.S. economy will fall into recession is hurting demand for higher-yielding local assets in Colombia, said Manuel Rey, chief analyst at Bogota-based brokerage Asesores en Valores.
A Conference Board report today showed U.S. consumer confidence fell more than forecast in March to 64.5, a five-year low, from a revised 76.4 in February.
Colombia’s peso dropped 0.5 percent to 1,830 per dollar from 1,821.85 on March 19, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.
Put Options
The central bank sold $179.9 million dollar put options for a third time this year to reduce fluctuations in the peso, compared to $590.3 million of investor bids. Investors paid a premium of 5 pesos per dollar, higher than the 4 pesos per dollar premium paid in the last auction on Feb. 20. A put grants the right to sell.
The yield on Colombia’s benchmark 11 percent bonds due July 2020 fell 9 basis points to 11.56 percent, according to Colombia’s stock exchange.
Peru’s sol rose 0.2 percent to 2.784 per dollar from 2.7907 yesterday. It touched 2.7816, the strongest since February 1998. The central bank bought $113.5 million in the foreign exchange market today to stem the currency’s gains.
The yield on Peru’s 8.6 percent sol-denominated bonds due in August 2017 was little changed at 6.47 percent, according to Scotiabank Peru.
Argentina’s peso dropped 0.1 percent to 3.161 per dollar from 3.159 yesterday. The yield on the nation’s 5.83 percent inflation-linked peso bonds due in December 2033 fell 8 basis points to 8.99 percent, according to Citigroup Inc.’s unit in Argentina.
Venezuela’s bolivar was little changed at 4.2 per dollar in the unregulated market, traders said. The government pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can’t get approval from the government’s Foreign Exchange Administration Commission to buy dollars at the official rate.
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