Analysts see Chile peso settling by year end

SANTIAGO, July 10 (Reuters) - Most analysts see the Chilean peso converging at about 500 per dollar at year end, as a currency intervention program expires and the central bank re-establishes its inflation-fighting credentials by raising rates.

The greenback started the year at near 500 pesos, slumped to 430 pesos in March, but after the central bank kicked off an $8 billion currency intervention in April to curb the strength of the peso the dollar scaled to a high of 529 pesos in June.

Six currency analysts and economists estimated the value of the dollar at year-end would be between 485 pesos and 530 pesos, but said the level would be influenced by several factors, including the intervention, oil and food prices, interest rates, inflation and the policies of the central bank.

Bertrand Delgado, senior economist and currency strategist with IDEAglobal in New York, said the intervention has complicated projections.

He sees the peso at about 506 per dollar at the end of the year, as the central bank fights inflation, but said it could strengthen to 485 depending on the bank's decisions.

"A few months ago the bank practically subordinated its monetary policy to the exchange rate policy. That's why the peso weakened so much," Delgado said. "That gives me a certain degree of assurance that they're going to raise rates and focus on inflation now."

Pedro Tuesta a senior Latam analyst with 4CAST in Washington sees the peso at 530 per dollar, given a reduction in the central bank currency intervention and moderately aggressive interest rate increases to 7.5 percent by year end.

"(The problem is) the intervention is temporary, it will change over time, and it's taking place in a highly inflationary context, so it's working against the bank's monetary policy."

Analysts say that while exporters benefit from a cheaper domestic currency, the rest of the economy is getting walloped with even higher inflation.

INFLATION PRESSURES AND INTERVENTION

Chile's consumer price index rose 1.5 percent in June, bringing 12-month inflation to 9.5 percent, its highest level since 1994.

The figure reinforced expectations the bank would hike its key rate by 50 basis points for a second month in a row to 7.25 percent on Thursday to control runaway inflation, which has helped the peso to appreciate to 504 per dollar despite the continued intervention.

"They're depreciating the currency at a time when inflationary pressures keep rising. That's very dangerous," said Delgado.

Barclays Capital Research does not see the bank suspending the intervention despite the problems it may be creating with inflation and sees the peso at 485 per dollar at year end.

"We do not expect an interruption of the intervention program, as the rules-based Chilean central bank will be very reluctant to modify it," Barclays said in a report. "We think the intervention program is largely priced in at this point."

Tomas Flores, a local economist with the Instituto de Libertad y Desarrollo also thinks the bank is unlikely to change course on its intervention.

"Our view is that they never should have started, but now that they have, its not easy to get out of it. They're stuck." (Additional Reporting by Maria Jose Latorre; Editing by Tom Hals)