Central Bank Intervenes As Chilean Peso Continues to Fall

SANTIAGO – The Chilean peso has dropped precipitously against the US dollar since the social crisis started in October. This week it sunk to historic lows. The Chilean central bank said it will soon sell up to US$20 billion in foreign currency interventions in an effort to stabilize the peso, but it remains to be seen if the effort will succeed.

On Nov. 28, Chile’s central bank announced a massive bid to stabilize the Chilean peso after the peso hit an all-time low. The monetary authority said it will sell up to $20 billion in foreign currency interventions starting Monday, as reported by Reuters.

The announcement caused the dollar to drop CLP$24 almost immediately, but that’s less than US$0.03, and the dollar quickly regained its upward trajectory on Nov. 29 and reached a new all-time high against the Chilean peso.

The social crisis is reportedly the cause of the Chilean peso’s drop in recent weeks. As reported by La Repúbica, this is because of the way economic actors and consumers respond to such situations. Among other things, when there is a political crisis, businesses and consumers start protecting their economic status by buying US dollars. As the demand grows, the value of the Chilean peso shrinks.

Since the start of the social unrest on Oct. 18, the dollar has climbed from CLP$709.53 to CLP$857.90 (as of the time of this article)—or nearly 21%.

According to El Comercio, the Chilean peso started falling against the US dollar just days after the social unrest started on Oct. 18. It has been falling ever since, despite the central bank’s positive predictions quoted by Diario Uchile and others.

The central bank’s efforts to prop up the peso will start next Monday, Dec. 2, and will end in May 2020. 

The last time the organization directly intervened in the currency market this way was in 2011, and the current injection is the biggest since 1999, according to La Tercera.

In its official release, the central bank not only announced the USD$20 billion injection, it also said it would continue to monitor national and international economic behavior and developments. The bank also said it would “continue to use all the tools available” to maintain the normal functioning of internal and external payments and achieve its 3% annual inflation target.

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