Chile Reviewing Dollar-Purchase Program After Peso Slump
September 22, 2011, 8:44 PM EDTBy Matthew Bristow and Randall Woods
(Updates with De Gregorio comments in seventh paragraph.)
Sept. 22 (Bloomberg) -- Chile’s central bank is constantly reviewing its dollar-purchase program, bank President Jose De Gregorio said on a day when the peso plunged against the dollar more than any other global currency.
“We will have to evaluate,” he said in an interview in Washington. “As we announced since we started, we will continue evaluating and look at what is really driving the market.”
The Chilean currency has tumbled 11 percent since Sept. 7 when De Gregorio told lawmakers the bank had no plans to change the program’s timeline and that markets were expecting dollar buying to end in December as originally scheduled. The bank started buying $50 million dollars a day on Jan. 5 in a bid to weaken the peso and boost reserves.
The dollar-purchasing program limited the peso’s gains even as the central bank raised its key interest rate five times this year. Policy makers now have room to reduce rates for the first time since July 2009 after keeping borrowing costs unchanged in the past three meetings, De Gregorio said.
“We are a country with a lot of space to cut rates, but whether we cut or not will depend on economic conditions,” he said. “We are flexible enough and proactive enough to make the appropriate decisions in the face of a bad world scenario.”
Policy makers may decide to keep rates unchanged until they have a better idea what direction the global economy will take, De Gregorio said.
“Perhaps there is no need to raise or to cut given the current world scenario,” he said. “It’s very difficult to say which way we should go, but of course we have space because inflation is on target. We have a lot of flexibility on the monetary policy side to respond to different scenarios in the world economy.”
Inflation was 3.2 percent in August and 2.9 percent in July, the National Statistics Institute said in a Sept. 8 report. The central bank targets 3 percent annual inflation plus or minus 1 percentage point over two years.
--Editors: Philip Sanders, James Attwood
To contact the reporters on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net; Randall Woods in Santiago at rwoods13@bloomberg.net.
To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.
