SANTIAGO, Chile – The Banco Central de Chile has begun to sell Chilean pesos and buy U.S. dollars, aiming to boost the central bank’s reserves by more than 40 percent over the next year to help shield Chile’s economy from financial turmoil.
“The central bank is justifying this as a need to build liquidity,” Vladimir Werning, a New York-based economist for JPMorgan Chase & Co. told Bloomberg News. “But the economy is growing below potential and the rapid pace of the peso is raising concerns over loss of competitiveness.”
Chile’s peso has risen 15 percent against the dollar this year, in the third-strongest showing of any currency tracked by Bloomberg News. But that rise endangers exports to the United States, which last year was the biggest buyer of Chilean fruits and vegetables.
Banco Central President José De Gregorio has been blasted by lawmakers for endangering the Chilean economy by allowing the peso’s rally to continue. So Thursday, he and other policymakers announced they would build the central bank’s reserves by selling Chilean pesos and buying $8 billion in U.S. dollars over the next year, in lots as large as $50 million per day.
“This is what we were asking for and we were starting to lose hope,” Rodrigo Echeverria, president of the Chilean fruit-growers’ association, told Bloomberg in a telephone interview. But Rodrigo Valdes, a former head of research at the central bank and now an economist at Barclays Capital in New York, called it “a risky move,” noting that “if there’s another shock – to food, fuel, another drought or whatever – they’re going to be in even more trouble than before.”
The Chilean peso fell 0.6 percent today to 449.72 per dollar, from 447.18 on Friday, as the central bank bought $50 million at an average price of 449.63 pesos per dollar, Bloomberg News said.
