Skyline in Chile

Chile Exchange Rate November 2019

Chile: Peso dives to a new record low as civil turmoil persists in November

Capital outflows drove the Chilean peso to an all-time low in November, as protests showed no signs of abating. On 29 November, the peso ended the day at 805 per USD, a 9.62% depreciation from the same day in October. The result marked a 13.8% depreciation year-to-date and a 16.7% loss from the same day last year.

After the Central Bank’s intervention on 14 November brought a brief respite, the peso continued to depreciate in recent weeks as the prospects of prolonged uncertainty stemming from the drafting of a new constitution and cooling economic activity dampened investors’ sentiment.

On 28 November, the Central Bank thus announced a USD 20 billion injection, the largest intervention since 1999, through swap and repo operations between 2 December and 24 May 2020. While the decision is certain to erode the country’s USD 39.5 billion worth of foreign currency reserves, it is not clear whether it will stem the peso’s plunge.

With regard to the Central Bank’s intervention, analysts at JPMorgan noted:

“The stress the peso is suffering obeys to stability considerations amid a protracted scenario of social unrest and street violence, which has prompted an abrupt portfolio repositioning against the backdrop of the pronounced stress and uncertainty. Thus, should the uncertainty extend further, the idea of BCCh sacrificing half of the reserves stock could exacerbate financial pressures. Yet, the low gross and net indebtedness of the public sector should be addressed when entertaining the actual macroeconomic buffers of the economy. For example, the low gross debt level allows the country to quickly negotiate an FCL line with the IMF so to engross the level of gross FX reserves.”

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