UPDATE 2-Chile central bank sees no big short-term capital inflow

Wed Dec 19, 2012 9:08am EST

* Latin America worried about stimulus in developed world
    * Chile peso up more than 9 percent against dollar this year
    * Central bank head says no need yet for forex intervention


    By Felipe Iturrieta
    SANTIAGO, Dec 19 (Reuters) - Large flows of short-term
capital are not flooding into Chile in the wake of the U.S.
Federal Reserve's announcement of a fresh round of monetary
stimulus, central bank president Rodrigo Vergara said on
Wednesday.
    Investors chasing higher interest rate returns have also
been lured by brisk growth in much of Latin America, as the debt
crisis drags on in Europe and the United States' economic
recovery remains tepid.
    " We don't see a big flow of short-term capital entering the
Chilean economy," Vergara told a business forum on Wednesday.
    Chile's central bank on Tuesday hiked economic growth
forecasts for both this year and next, adding that buoyant
domestic demand and investments are seen remaining firm. 
    Additionally, the country's key rate has remained on hold at
5.0 percent since a surprise cut in January, spurring investor
interest amid very low rates in the United States and much of
Europe.
 
    Vergara reiterated that intervening in the local peso
currency market was a tool at the bank's disposal, but that if
it hadn't intervened so far it was because it hadn't been deemed
"necessary."
    Chile's peso has strengthened over 9 percent this
year against the U.S. dollar, making it one of the strongest
foreign currency performers against the dollar among 152
currencies tracked by Reuters. The peso's strength cuts in
exporters' competitiveness.
    Early last year, the central bank launched a $12 billion
dollar purchasing program, which lasted through December 2011,
to curb peso strength after it appreciated to its highest level
in more than 2-1/2 years at 465.50 per dollar. 
    Latin American policy-makers are worried stimulus measures
in the developed world will trigger more capital flows that
could further strengthen the commodities-dependent region's
currencies, its finance ministers said on Friday.
 
     Emerging markets have blamed loose monetary policies in
rich nations for spurring destabilizing flows of hot money, and
the IMF is trying to forge a consensus on when it makes sense
for nations to resort to capital curbs. 
    The U.S. Federal Reserve, announcing a new round of monetary
stimulus, took the unprecedented step earlier this month of
indicating interest rates would remain near zero until
unemployment falls to at least 6.5 percent. 
    It was the latest in a series of unorthodox measures taken
by central banks around the world to battle erratic, sub-par
recoveries from the financial crisis and recession of 2007-2009.
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