Saturday 7 December 2019

Chile to sell off dollars in bid to stabilise the peso

Chile has been racked by civil unrest. Photo: REUTERS/Goran Tomasevic
Chile has been racked by civil unrest. Photo: REUTERS/Goran Tomasevic

Philip Sanders

Chile's peso rallied as its central bank offered to sell as much as a quarter of its entire dollar reserves to stabilise a currency which had fallen to record lows in each of the two previous trading sessions.

The peso closed at 809.46 per dollar in Santiago, up 2.3pc, after strengthening to as much as 797.39 per dollar earlier in the day.

The central bank will sell $200m a day on the spot market next week, the first stage of an intervention policy which could reach $10bn, bank president Mario Marcel said.

It will also offer $200m in the forwards market each day. It is the first direct intervention in the market since 2011 and follows two weeks of large price swings.

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"The objective of this measure is to reduce an excessive level of volatility in the market which has been expressed through an overreaction to news," Marcel said. "More than the level of the peso itself, we think volatility itself has gone beyond fundamentals."

The peso has tumbled 10.3pc in a month as the worst social unrest in decades forces shops to close, paralyses much of the public transport system and leads many people to cut short their working hours.

The government, which has agreed to write up a new constitution to placate protesters, has estimated the damage to state property alone at $1bn. In the meantime, looting continues.

The intervention "looks promising, but I think we need to follow what happens in regards to the change in the constitution and so on before we say that the sell-off is over," said Lisa Synning, a Stockholm-based money manager at Handelsbanken Fonder.


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