Reuters: US Dollar Report: EMERGING MARKETS-Chile peso slumps on intervention concerns

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EMERGING MARKETS-Chile peso slumps on intervention concerns Sep 28th 2012, 22:53 Fri Sep 28, 2012 6:53pm EDT * Chile cenbank president doesn't rule out intervention * Colombia says will keep up dollar purchases * Mexican peso falls 0.31 pct; Brazil real up 0.28 pct By Moises Avila and Jean Arce SANTIAGO/MEXICO CITY, Sept 28 (Reuters) - Chile's peso slumped by the most in seven weeks on Friday after the central bank warned it could act to curb currency gains, while Colombia pledged to keep buying dollars in its market to fight peso strength. The Chilean peso lost nearly 0.8 percent to change hands at 474.60 per U.S. dollar after central bank chief Rodrigo Vergara said policymakers may intervene during "exceptional periods" in which the exchange rate is significantly out of line with fundamentals. The move by Chile pushed it closer to the stance of policymakers in Brazil, Colombia and Peru who have been intervening in markets to fight dollar inflows that have lifted their currencies and hurt exporters. "The central bank's comments weakened the peso because they leave the door open for a possible intervention. The market isn't just speculating about the possibility of dollar purchases, but also bank deposit requirements," said Rodrigo Sarria, a trader at Celfin Capital in Santiago. The peso has gained more than 9 percent so far this year, making it the second strongest performer among the 152 currencies tracked by Reuters. Stimulus measures announced by the U.S. Federal Reserve and the European Central Bank boosted Latin American currencies this quarter. The measures are expected to drive down yields on U.S. and European fixed-income instruments, making emerging market assets more attractive. The Chilean peso gained 5.5 percent against the dollar in the third quarter, while Mexico's peso firmed 4.5 percent. Brazil's real shed 0.8 percent against the greenback in the quarter after Brazil's central bank intervened. Colombia's central bank held its benchmark interest rate steady on Friday, and it pledged to extend daily dollar purchases to keep a lid on the peso. The central bank said it would buy at least $3 billion in the foreign exchange market via auctions from Oct. 1 through March 29, 2013, to take pressure off the peso currency. The Colombia peso slipped 0.1 percent on Friday, bringing its decline for the quarter to 0.9 percent, hurt by central bank dollar purchases. The Mexican peso lost a modest 0.31 percent to trade at 12.8660 per dollar as concerns about Spain made investors cautious about taking risks in emerging markets. A stress test on Spanish banks showed the institutions need a total of 59.3 billion euros in extra capital, but uncertainty persisted about whether Spain will ask for a bailout that would let the European Central Bank begin buying its bonds. "We could see a whole to wave of pressure related to Spain," said Jorge Gordillo, an analyst at CI Banco in Mexico City, saying that concerns about Spain could weigh on the peso in the coming week. "We think that it will be in October when Spain will ask (for a bailout), and if this happens the peso and stock markets are going to take it well." Barclays analysts said the Mexican peso could outperform its emerging market peers in Latin America and Asia because its central bank is unlikely to intervene. Banco de Mexico research published on Friday said emerging market attempts to stem capital inflows during the last round of Fed easing had a limited effect in the longer term. Steps pursued by countries such as Brazil, Chile and Colombia, including new taxes on investment, higher bank reserve requirements and tariff reforms, may even make investors see them as a riskier bet, the research paper said. The Brazilian real decoupled from the rest of the market, rising 0.28 percent to 2.0255 per dollar, as investors tried to influence the currency's closing rate at the end of the month. Brazilian policymakers have pledged to move aggressively to offset expected capital inflows from the easy monetary conditions in the developed world. A senior government official recently told Reuters that Brazil will defend the level of 2 reais per dollar "like a wall." Latin American FX prices at 2100 GMT: Currencies daily % year-to- change ate % Latest change Brazil real 2.0255 0.28 -7.75 Mexico peso 12.8660 -0.31 8.58 Argentina peso* 6.2800 0.32 -24.68 Chile peso 474.6000 -0.76 9.42 Colombia peso 1,800.3000 -0.10 7.67 Peru sol 2.5980 -0.08 3.81 * Argentine peso's rate between brokerages Link this Share this Digg this Email Reprints

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