TEXT-Chile cenbank to intervene in currency market

SANTIAGO, April 10 (Reuters) - Chile's central bank said on Thursday it will intervene in the foreign exchange market to boost liquidity in the economy and in response to the local peso's CLP=CL CHILJ sharp appreciation against the dollar.

The central bank said in a statement the "exceptional measure" aims to boost foreign reserves by $8 billion by buying dollars on the currency market, in the period from April 14 to Dec. 12.

Following is the text of the statement.

The complex scenario that financial markets in developed economies are going through, triggered by the crisis in the United States real estate market, has increased the risk of severe disruptions that could negatively impact the external financial conditions faced by the Chilean economy.

The macroeconomic framework based on a floating exchange rate, inflation targeting, a fiscal rule and prudential financial supervision puts the Chilean economy in a favorable position to weather these turbulences. Nevertheless, the depth and consequences of an international financial crisis remain highly uncertain.

With these concerns in mind, the Board of the Central Bank of Chile today decided to intervene in the foreign exchange market so as to strengthen the external liquidity position of the Chilean economy.

This increase in the stock of international reserves will leave the Chilean economy better prepared to face the eventuality of an additional, severe and abrupt deterioration of the external environment.

In the inflation targeting and exchange rate flexibility framework put in in September 2nd 1999, this exceptional measure is justified by the unusual degree of uncertainty regarding events in international financial markets.

It is also coherent with the evaluation that the real exchange rate is currently below the level that would prevail once real and financial conditions in the world economy return to normal.

The Board of the Central Bank of Chile has adopted the following measure:

To increase the stock of international reserves by US$ 8000 million, by purchasing foreign currency over the period extending from April 14th to December 12th 2008.

The Central Bank of Chile will, in due course, announce the specific purchase programs, which could be modified according to market conditions. The first program, which will run from April 14th to May 9th will consist of daily purchases of around US$ 50 million via competitive auctions.

The monetary effects of this measure will be offset so that liquidity provision is consistent with the monetary policy rate. During the period comprising the first program mentioned above this will be done with short term operations.

This exceptional measure is coherent with the overall conduct of monetary policy, which aims to keep inflation at 3% most of the time, with a tolerance range of +/- 1%.

The current monetary policy rate allows the convergence of the current high current inflation rates to 3% over the policy horizon. Monetary policy actions, in one direction or the other, cannot be ruled out in response to future changes in inflation prospects.

The Central Bank of Chile will continue to use all of the tools at its disposal in pursuit of the objectives assigned to it by law. (Editing by Carol Bishopric)