Bloomberg News

Chile Short-Term Borrowing Costs Fall as Bank Opens Repo Window

December 27, 2011

Dec. 27 (Bloomberg) -- Chilean short-term borrowing costs slid for a fourth day as the central bank opened a so-called repo window, allowing lenders to pawn assets.

The average monthly interest rate on a term deposit due in less than 31 days fell to 0.47 percent today, the lowest since Dec. 9 and a decline of 16 basis points from its peak on Dec. 21. The central bank reopened its repo window today, allowing banks to borrow money in return for collateral for periods of 28 or 91 days at the benchmark 5.25 percent interest rate.

A spike in term-deposit rates last week pushed a string of Chilean mutual fund managers into revaluing money-market funds using mark-to-market values and the decline in yields is now having the same effect in reverse. The bank carried out a one- off repo operation on Dec. 21 and announced a twice-weekly window on Dec. 22.

“It indicates that the central bank is attentive and ready to act,” said Matias Madrid, chief economist at Banco Penta in Santiago.

Zurich Administradora General de Fondos, which changed the valuation on a short-term debt fund on Dec. 21, said today it had done the same again, reflecting a gain. Celfin Capital SA Administradora General de Fondos also said it would revalue to reflect “the sharp decline in yields.”

The average monthly rate paid to borrow for between 31 and 60 days fell to 0.51 percent from 0.53 percent, according to the stock exchange.

Mutual Funds

Larrain Vial Administradora General de Fondos SA said in a filing to the securities regulator yesterday that it had marked its mutual funds to market on Dec. 23 and found the value had risen. Money-market mutual funds based in Chile reported a weighted average loss of 0.1 percent in 30 days through yesterday, according to data from the mutual fund association.

The average annualized interest rate paid to borrow pesos for between 30 and 89 days fell 36 basis points, or 0.36 percentage point, on Dec. 23 to 6.60 percent from 6.96 percent on Dec. 22, according to central bank data. The rate to borrow for between 90 and 365 days fell 12 basis points to 6.36 percent.

Interbank loan rates plunged. The 30-day rate in pesos fell 39 basis points to 6.72 percent today from 7.11 percent yesterday, according to the banking association. The 365-day interbank rate declined 10 basis points to 6.35 percent. Chile’s peso weakened as the price of copper, the country’s biggest export, declined on cooling company profits in China.

The yield on 10-year government bonds in pesos fell to 5.23 percent today from 5.27 percent. Basis swap rates were little changed today.

Peso Weakens

The peso depreciated 0.3 percent to 521.44 per U.S. dollar from 519.95 yesterday. The Bloomberg JPMorgan Latin American Currency Index fell 0.4 percent.

Copper, which makes up more than half of Chile’s exports, fell 1.6 percent to $3.414 a pound on the Comex in New York after a report suggested the economy of China, the biggest buyer of the metal, may be slowing.

“Copper’s down, everything else is flat,” said Ronald Volpi, head of spot currency trading at EuroAmerica Corredores de Bolsa SA. “There’s little volume and little liquidity.”

Offshore investors in the Chilean peso forwards market increased their bets against the currency to $6 billion on Dec. 23, the highest since Nov. 25.

--Editors: James Attwood, Brendan Walsh

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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