Bloomberg News

Chile Rate Swaps Reach Six-Month High on Central Bank Statement

February 15, 2012

Feb. 15 (Bloomberg) -- Chilean interest-rate swaps rose to a six-month high after the central bank kept its benchmark interest rate unchanged yesterday while signaling that it’s more concerned about inflation than slowing growth.

The two-year swap rate in pesos climbed seven basis points, or 0.07 percentage point, to 4.78 percent as of 12:56 p.m. in Santiago. It earlier reached 4.8 percent, the highest since Aug. 19.

The central bank’s five-member policy committee yesterday voted to keep the rate unchanged at 5 percent after cutting by a quarter-point in January. The economy and domestic spending have expanded faster than the bank’s forecasts and inflation was faster than the top of its 2 percent to 4 percent target range, the bank said in a statement accompanying its decision.

“Even though the market had expected a pause, it was a little phased by those comments and now it is starting to think about a hold in March,” said Rodrigo Blazquez, a trader at Deustche Bank SA in Santiago.

The central bank targets 3 percent inflation plus or minus one percentage point over a 24-month horizon. Annual inflation has exceeded the upper limit of the target for the past two months, reaching 4.2 percent in January.

The peso fell 0.1 percent to 485.27 per dollar, from 484.65 yesterday. The Bloomberg JPMorgan Latin American Currency Index rose 0.1 percent.

The Standard & Poor’s GSCI gauge of 24 raw materials rose as much as 1.4 percent.

The central bank’s decision may push the peso higher, according to Italo Lombardi, a Latin America economist at Standard Chartered Bank in New York.

“If you were expecting a cut and you don’t get one it adds to the attractiveness of the currency,” he said. “It’s not only this decision, it’s what they signal. Markets will now reprice the whole cutting cycle. We may see fewer cuts in total and we may see them later.”

Offshore investors in the Chilean peso forwards market had a $4.7 billion short position in the peso on Feb. 13, up from $4.6 billion on Feb. 10.

--Editors: Brendan Walsh, Glenn J. Kalinoski

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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