Chile: USD fell by almost $15 after messages from the Central Bank and strong copper prices.

The price of copper surged by 2.3% to its highest level since February 2023.

On Wednesday, the Chilean peso strengthened significantly in the foreign exchange market as investors absorbed the less expansionary message delivered by the Central Bank through its policy statement yesterday afternoon and the Monetary Policy Report (IPoM) this morning.

Before noon, the dollar fell by $14.22 to $961.68 – near session lows – in market quotes. On the external front, Comex copper surged by 2.31% to $4.16 per pound, its highest price since February 2023, while the dollar index retreated by 0.14%.

In line with general expectations, the Central Bank reduced the Monetary Policy Rate (MPR) by 75 basis points to 6.5%, accompanied by the projections of the IPoM, which reflected a scenario of higher growth and higher inflation.

There was a strong appreciation of the Chilean peso during the morning, and we attribute it to the more measured statement compared to previous statements from the Central Bank or (its president) Rosanna Costa. Previously, the discourse was that they would continue with the program of rate cuts, as inflation and the exchange rate did not pose a problem.

Anticipating the less expansionary tone deployed in the Central Bank’s messages, the exchange rate dropped by nearly $10 in Tuesday’s session.

The price of copper holds immense significance in Chile due to the country’s heavy reliance on copper exports, which account for a significant portion of its GDP and government revenue.

As the world’s largest producer of copper, fluctuations in copper prices directly impact Chile’s economic performance, fiscal stability, and overall investor sentiment. Higher copper prices typically lead to increased revenues for the government and mining companies, stimulating economic growth and investment in the country.

Conversely, downturns in copper prices can result in reduced export earnings, budgetary constraints, and economic challenges for Chile, making the price of copper a crucial factor in shaping the nation’s economic outlook and policy decisions.