April 9, 2013 / 12:52 PM / 5 years ago

UPDATE 1-Chile peso gains 0.3 pct, reaches '11 intervention level

SANTIAGO, April 9 (Reuters) - Chile’s peso gained 0.3 percent Tuesday morning, reaching levels that had triggered a central bank currency intervention in early 2011 to stem its strength.

The peso gained to bid at 465.50 per dollar, a new year-and-a-half high. It is up 2.7 percent so far in 2013.

Exporters, especially fruit producers, in trade-intensive Chile have been hurt by the peso’s appreciation and have called on authorities to take action.

The peso, which has been buoyed by Chile’s robust economy, an attractive rate differential and healthy prices for top export copper, was one of the strongest performers against the U.S. dollar among 152 currencies tracked by Reuters after appreciating 8.48 percent last year.

“The peso keeps on strengthening and if it closes the session beyond 466 per dollar, the next level it will look for is 460. This is due to advancing copper prices, which are being lifted by a mining strike in Chile,” said Sergio Tricio, head of research at Forex Chile.

Unionized workers at Chilean state miner Codelco, the world’s top copper miner, began a 24-hour work stoppage early Tuesday at all of its units to demand greater job security, while workers at private mines only partially adhered to the call for a national strike.

Chile’s central bank deployed a dollar-purchasing program in 2011, increasing its foreign reserves by $12 billion, to curb peso strength after it appreciated to 465.50 per dollar, then its highest level in more than 2-1/2 years.

In recent weeks, the bank has said a currency market intervention is one of the tools at its disposal, but it has also highlighted the costs associated with using that measure.

“Two other factors boosting the peso are the weakness of the dollar since last weekend and the central bank’s last monetary policy report, which was interpreted by the market as saying that an intervention wasn’t imminent despite the peso’s strength,” Tricio said.

The bank is concerned with reining in robust domestic demand, which has been growing faster than gross domestic product and has helped to fuel a widening current account deficit.

Analysts have said the central bank could raise its key interest rate to rein in the buoyant demand sooner than forecast, but it may have to incur a currency intervention before a hike to avoid further strengthening the peso.

Over the weekend, bank board member Enrique Marshall said the bank will act if the local economy maintains dynamism “above what is reasonable,” and interest rates are the best instrument at the entity’s disposal.

Ebullient domestic demand, an economy nearing full employment and heavy investment have protected the world’s No. 1 copper producer from a sharp slowdown on the back of global economic woes, but many analysts are now worried about overheating.

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