Chile: Central Bank intervenes to curb peso appreciation
January 5, 2011
At a special meeting held on 3 January, the Central Bank announced a plan to pin down the strengthening peso, amid fears that the appreciation of the national currency could threaten the competitiveness of the Chilean export sector. The plan entails a total purchase of USD 12 billion in foreign reserves. The Central Bank will operate periodic purchases of foreign reserves from 5 January until the end of 2011. According to the Central Bank's statement, the first step of the program involves daily purchases of USD 50 million in competitive biddings held between from 5 January to 9 February. The decision surprised market analysts, as the Central Bank is not known for manipulating its exchange rate. However, the Board of the Central Bank of Chile reiterated its commitment to maintain a monetary policy regime based on inflation-targeting and preserve the floating exchange rate. On 4 January, the day following the announcement, the peso plunged 4.6% to CLP 488 per USD from CLP 466 per USD, after trading between 506 and 468 per USD from December 2009 to December 2010, which saw the peso appreciate 8.1% over 2010.