SANTIAGO, Aug 21 (Reuters) - Chile’s central bank is nowhere near intervening in the foreign exchange market, economists said, despite the peso’s fall to a 12-year low against the U.S. dollar.
The peso weakened sharply against the greenback this week, extending its year-to-date decline to 12.5 percent. It came close to breaching the 700 peso to the dollar mark for the first time since 2003, as fears over the Chinese economy have led down the price of copper, Chile’s key export.
Out of nine economists and analysts surveyed by Reuters, three thought the central bank might decide to intervene if the peso were to hit 750 per dollar, but others did not see an intervention likely at all.
“I don’t see any kinds of signs they are ready or inclined to intervene in the FX,” said Tiago Severo, economist at Goldman Sachs.
“When we look at the language of the central bank’s communications it seems that they see this adjustment of the currency as part of a natural rebalancing of the market,” he added.
The bank has made no attempt to talk down the peso but has expressed concern that risks from the Chinese economy and U.S. monetary policy could increase volatility and have a knock-on effect on inflation.
Of the world’s 36 most-traded currencies, the Chilean peso has posted the 6th biggest fall versus the dollar in 2015, trading at 696.70 on Friday, much weaker than prior forecasts.
Many of Latin America’s central banks intervene to a greater or lesser extent in their foreign exchange markets to shore up their currencies.
Colombia’s central bank has not intervened so far this year despite a 61 percent depreciation in its peso currency, but analysts say that may change soon because of inflation worries. Policymakers meet to vote on the benchmark interest rate on Friday.
In Chile, the currency’s sharp drop has also fanned consumer prices, keeping 12-month inflation at the top end or above the central bank’s 2 percent to 4 percent target range since April 2014.
That could lead the central bank to respond by hiking interest rates, the economists said.
“It’s possible that the central bank will start to remove its monetary stimulus and hike interest rates by 25 or 50 basis points towards the end of 2015, regardless of weak economic growth,” said Diego Colman, analyst with 4Cast. (Additional reporting by Felipe Iturrieta in Santiago and Julia Symmes Cobb in Bogota, writing by Anthony Esposito; Editing by Rosalba O’Brien and Meredith Mazzilli)
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