Chile’s Peso Advances After Bigger-Than-Expected Rate Reduction

By Andrea Jaramillo

Jan. 9 (Bloomberg) -- Chile’s peso jumped the most in six weeks after the central bank unexpectedly cut its benchmark interest rate yesterday by a full percentage point to shore up faltering economic growth.

The peso climbed the most since Nov. 26, rising 1.8 percent to 615.60 per U.S. dollar at 8:37 a.m. New York time, from 626.75 yesterday. It touched 614.25, the strongest since Nov. 6. While the rate cut reduces the yield advantage on local fixed-income assets, it’s buoying the peso by fueling expectations investment flows will pick up to the South American country as the economy rebounds.

The move “is generating optimism,” said Alfredo Coutino, an economist at Moody’s Economy.com Inc. in West Chester, Pennsylvania. “Inflation is no longer a problem and the market sees the bank is taking action opportunely.”

The currency held gains after a U.S. report showed the world’s biggest economy lost 524,000 jobs last month, 1,000 fewer than the median estimate in a Bloomberg survey of economists.

Banco Central de Chile late yesterday cut the overnight lending rate to 7.25 percent, citing a “drastic change in the macroeconomic situation.” None of the 20 economists surveyed by Bloomberg predicted a one-point reduction. Nineteen forecast a smaller cut and one analyst predicted a reduction of 1.25 percentage points.

The yield for a basket of five-year peso bonds in inflation- linked currency units, called unidades de fomento, fell one basis point to 3.44 percent, according to Bloomberg composite prices.

Colombia, Argentina

In Colombia, the peso rose 0.3 percent to 2,203.05 per dollar, from 2,209.3 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.

The yield on the nation’s benchmark 11 percent bonds due in July 2020 fell six basis points, or 0.06 percentage point, to 10.11 percent, according to Colombia’s stock exchange. The price advanced 0.392 centavo to 105.752 centavos per peso.

Argentina’s peso was little changed, rising 0.04 percent to 3.4485 per dollar from 3.4500 yesterday. The yield on the country’s inflation-linked peso bonds due in December 2033 rose one basis point to 16.94 percent, according to Citigroup Inc.’s local unit.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net