EMERGING MARKETS-Chile peso slumps on intervention concerns

by on September 28, 2012 10:53 pm BST

Fri Sep 28, 2012 6:53pm EDT

* Chile cenbank president doesn't rule out intervention
    * Colombia says will keep up dollar purchases
    * Mexican peso falls 0.31 pct; Brazil real up 0.28 pct

    By Moises Avila and Jean Arce
    SANTIAGO/MEXICO CITY, Sept 28 (Reuters) - Chile's peso
slumped by the most in seven weeks on Friday after the central
bank warned it could act to curb currency gains, while Colombia
pledged to keep buying dollars in its market to fight peso
    The Chilean peso lost nearly 0.8 percent to change
hands at 474.60 per U.S. dollar after central bank chief Rodrigo
Vergara said policymakers may intervene during "exceptional
periods" in which the exchange rate is significantly out of line
with fundamentals. 
    The move by Chile pushed it closer to the stance of
policymakers in Brazil, Colombia and Peru who have been
intervening in markets to fight dollar inflows that have lifted
their currencies and hurt exporters.   
    "The central bank's comments weakened the peso because they
leave the door open for a possible intervention. The market
isn't just speculating about the possibility of dollar
purchases, but also bank deposit requirements," said Rodrigo
Sarria, a trader at Celfin Capital in Santiago. 
    The peso has gained more than 9 percent so far this year,
making it the second strongest performer among the 152
currencies tracked by Reuters.
    Stimulus measures announced by the U.S. Federal Reserve and
the European Central Bank boosted Latin American currencies this
quarter. The measures are expected to drive down yields on U.S.
and European fixed-income instruments, making emerging market
assets more attractive. 
    The Chilean peso gained 5.5 percent against the dollar in
the third quarter, while Mexico's peso firmed 4.5 percent.
Brazil's real shed 0.8 percent against the greenback in the
quarter after Brazil's central bank intervened. 
    Colombia's central bank held its benchmark interest rate
steady on Friday, and it pledged to extend daily dollar
purchases to keep a lid on the peso. 
    The central bank said it would buy at least $3 billion in
the foreign exchange market via auctions from Oct. 1 through
March 29, 2013, to take pressure off the peso currency. 
    The Colombia peso slipped 0.1 percent on Friday,
bringing its decline for the quarter to 0.9 percent, hurt by
central bank dollar purchases.
    The Mexican peso lost a modest 0.31 percent to trade
at 12.8660 per dollar as concerns about Spain made investors
cautious about taking risks in emerging markets.
    A stress test on Spanish banks showed the institutions need
a total of 59.3 billion euros in extra capital, but uncertainty
persisted about whether Spain will ask for a bailout that would
let the European Central Bank begin buying its bonds.
    "We could see a whole to wave of pressure related to Spain,"
said Jorge Gordillo, an analyst at CI Banco in Mexico City,
saying that concerns about Spain could weigh on the peso in the
coming week. "We think that it will be in October when Spain
will ask (for a bailout), and if this happens the peso and stock
markets are going to take it well."
    Barclays analysts said the Mexican peso could outperform its
emerging market peers in Latin America and Asia because its
central bank is unlikely to intervene.
    Banco de Mexico research published on Friday said emerging
market attempts to stem capital inflows during the last round of
Fed easing had a limited effect in the longer term.
    Steps pursued by countries such as Brazil, Chile and
Colombia, including new taxes on investment, higher bank reserve
requirements and tariff reforms, may even make investors see
them as a riskier bet, the research paper said. 
    The Brazilian real  decoupled from the rest of
the market, rising 0.28 percent to 2.0255 per dollar, as
investors tried to influence the currency's closing rate at the
end of the month.
    Brazilian policymakers have pledged to move aggressively to
offset expected capital inflows from the easy monetary
conditions in the developed world. 
    A senior government official recently told Reuters that
Brazil will defend the level of 2 reais per dollar "like a
    Latin American FX prices at 2100 GMT:
 Currencies                            daily %  year-to-
                                        change     ate %
                              Latest              change
 Brazil real                  2.0255      0.28     -7.75
 Mexico peso                 12.8660     -0.31      8.58
 Argentina peso*              6.2800      0.32    -24.68
 Chile peso                 474.6000     -0.76      9.42
 Colombia peso            1,800.3000     -0.10      7.67
 Peru sol                     2.5980     -0.08      3.81
 * Argentine peso's rate between