Latin American Currencies: Chile Peso Dives Most Since May 1992

By Drew Benson

Oct. 10 (Bloomberg) -- Chile's peso plunged the most since May 1992 as the global credit crisis deepened, fueling capital flight from Latin America's commodities-dependent countries.

The credit crunch is ``increasingly hitting home'' in the region as increased capital flight, tightening liquidity, ``plummeting commodities prices and collapsing global growth are all combining for a very unsupportive emerging markets landscape,'' RBC Capital Markets economists Nick Chamie, Paul Biszko, Eduardo Suarez and Nigel Rendell said in a research note.

Chile's peso dropped 4.2 percent to 638.25 per dollar. It touched 639.5, its weakest since Aug. 16, 2004, and has fallen 10.6 percent this week.

``Many people are pulling money out of Chile today, looking for safe havens,'' said Ricardo Gomez, head of fixed-income sales and trading at Larrain Vial SA in Santiago. He said speculation is mounting that the central bank will start selling dollars.

Central banks across Latin America have stepped into markets during the past two weeks in a bid to bolster currencies and add cash to local financial systems.

Chile's central bank halted its $50 million daily purchase program late last month, and last week conducted the first of four weekly auctions aimed at injecting a total of $2 billion into the local financial system. The bank yesterday left its benchmark interest rate at 8.25 percent.

Colombian Peso

The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, known as unidades de fomento, rose 2 basis points to 2.97 percent, according to Bloomberg composite prices.

Colombia's peso slumped 3.5 percent to 2,314 per dollar at 4:45 p.m. New York time, from 2,233.88 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.

The Colombian currency peso tumbled even after the central bank lifted controls this week on foreign borrowing in a bid to shore up the currency. The bank's board said late yesterday it rescinded restrictions that forced 40 percent of some overseas borrowing, such as the financing of imports, to remain in the central bank for six months. A day earlier, the bank lifted similar controls on foreign investment in fixed-income securities.

The yield on Colombia's benchmark 11 percent bonds due in July 2020 climbed 53 basis points, or 0.53 percentage point, to 12.8 percent, according to Colombia's stock exchange.

Argentine Peso

Argentina's peso snapped a 12-day slide, rising 0.3 percent to 3.2235. The peso recovered after falling as much as 1.3 percent earlier to 3.274, its weakest since Jan. 29, 2003. Three currency traders, including Gustavo Quintana of Lopez Leon Brokers in Buenos Aires, said the central bank sold dollars throughout the session to shore up the peso. A central bank spokesman declined to comment.

The yield on Argentina's 5.83 percent peso bonds due in 2033 rose 1 basis point to 13.83 percent, according to Citigroup Inc.'s local unit.

In Peru, the sol was little changed at 3.0775 per dollar, from 3.075 yesterday, amid ``huge demand from local corporates and offshore accounts'' for dollars, said Gonzalo Navarro, a trader with Banco Santander in Lima. The central bank said it sold $354.5 million today to shore up the peso. The bank has sold $2.2466 billion since Sept. 29.

Venezuela's bolivar weakened 1.8 percent to 5.3 per dollar in the unregulated market, its lowest since February, traders said. The government pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get government approval to buy dollars at the official rate.

Markets will be closed in Argentina and Colombia Oct. 13 for national holidays.

To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net