USD/CLP approaching 900.0000 as Chilean Peso falters on low copper prices, interest rate slashes looming

USD/CLP approaching 900.0000 as Chilean Peso falters on low copper prices, interest rate slashes looming
  • 08/09/2023 22:05:45 GMT
  • The USD/CLP pair is surging to notable highs amidst the depreciation of the Chilean Peso.
  • The CLP has experienced a substantial decline, largely attributed to the Chilean central bank’s decision to reduce interest rates in response to dwindling inflation.
  • Economists in the market anticipate that the Banco Central de Chile is poised to initiate a series of interest rate cuts, with expectations of 100-point reductions in the months ahead.

The Chilean Peso (CLP) remains under pressure in the financial markets, declining by more than 5% against the US Dollar (USD). This has propelled the USD/CLP currency pair to its highest level in ten months, approaching the 896.0000 mark.

CLP slides on waning copper demand, rapidly-dwindling inflation

For the past three months, the Chilean Peso has experienced a continuous depreciation against the US Dollar, primarily due to the Banco Central de Chile (BCP) grappling with the challenge of maintaining a balanced interest rate policy amid rapidly receding inflation in the Chilean economy.

Chile’s inflation has hit a two-year low, standing at an annualized rate of 5.3%. This marks the ninth consecutive month of declining inflation, placing the BCP in the difficult position of having to intensify its rate-cutting efforts.

At its September meeting, the Banco Central de Chile (BCP) implemented a 75 basis point reduction in its benchmark rate. Market analysts now speculate that the Chilean central bank may need to consider implementing more substantial 100-point rate cuts in the near term to provide vital support to the broader economy.

Meanwhile, copper prices have continued their decline in the market, closing the week at $3.71 per pound, a significant drop from the high of $4.27 per pound seen in January. This downward trend is compounded by weakening copper demand from China, driven by economic challenges faced by the nation. Chile, which stands as the world’s largest single producer of copper, is particularly susceptible to the impact of China’s faltering demand, further contributing to the weakness of the Chilean Peso (CLP).

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