Bloomberg News

Chilean Peso Advances After Merkel Urges Firewall Around Greece

September 26, 2011

Sept. 26 (Bloomberg) -- Chile’s peso gained for a second day after German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states.

The peso climbed 1 percent to 512.25 per U.S. dollar as of 12:29 p.m. New York time, from 517.36 on Sept. 23. The currency tumbled 7.2 percent last week as copper, the country’s biggest export, slumped to a one-year low on signs of slowing demand.

Euro-area countries will do whatever is necessary to end the debt crisis and ensure the financial stability of the region, the International Monetary Fund said in a statement after its meetings in Washington on Sept. 24. Stocks rose and copper, which accounts for more than half of Chile’s exports, was little changed after falling 17 percent last week.

“It’s related to Greece, but it seems very transitory,” said Alejandro Araya, a trader at Banco Santander Chile in Santiago. “While the weekend meeting was positive, it’s not enough to support a rally of more than seven pesos. The gap to 507 pesos is a dollar-buying opportunity.”

Foreign investors in the Chilean peso forwards market had a $4.3 billion position in the U.S. dollar versus the peso as of Sept. 22, according to the central bank.

Swap rates in pesos fell, implying traders expect lower central bank interest rates. Economists at Santiago-based brokerage Larrain Vial SA today wrote that they don’t rule out a fall in the benchmark rate in December 2011 and that rate cuts could be as fast as 50 basis points a month.

Swaps Fall

The three-month and six-month swap rates in pesos fell 10 basis points, or 0.1 percentage point, to 5.16 percent and 4.93 percent, respectively. The one-year swap rate fell six basis points to 4.50 percent. The curve has steepened from a week ago, suggesting investors expect rates to fall in the short term and rise in the long term.

Economists at Banco de Credito & Inversiones recommended paying swaps between six and 12 months. Fair value for the six- month rate is 5.3 percent and for the one-year is 5.4 percent, they wrote today in a note to clients, while warning that a flight to quality could push rates lower still.

The yield on a basket of five-year inflation-linked central bank bonds rose six basis points to 1.94 percent as of 12:02 p.m. New York time. The yield on five-year inflation-linked swaps fell one basis points to 1.94 percent, while five-year swaps in pesos fell two basis points to 4.82 percent.

A stronger peso implies slowed inflation at it tempers rises in the price of imports such as oil. Chile relies on imports for almost all its oil and gas needs.

Five-year and two-year breakeven inflation rates were little changed at 2.83 percent and 2.65 percent, respectively.

--Editors: James Attwood, Brendan Walsh

To contact the reporter on this story: Sebastian Boyd in Santiago at

To contact the editor responsible for this story: David Papadopoulos at

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