The blackboard of a money exchange house in downtown Santiago shows the last price of the dollar against the Chilean peso, on July 15, 2022. Esteban Felix (AP)
The Central Bank of Chile announced on Thursday night a program of foreign exchange intervention and liquidity provision of up to 25,000 million dollars.
The objective of the measure is to prop up the value of the Chilean peso, which this week broke the barrier of 1,000 units for each dollar for the first time.
To the effects of the global crisis, Chile has added the collapse in the price of copper, its main source of foreign currency from exports, and the political uncertainty that accompanies the process of a new constitution.
The Central Bank's plan starts on Monday and will last until September, but the announcement was enough for the peso to recover part of the value lost in recent days.
This Friday, the price of the currency was located at 977 pesos, 70 less than the day before.
The Central Bank's foreign exchange intervention has been a blow to the table for an economy mired in crisis.
Finance Minister Mario Marcel was president of the Central Bank until January, when President Gabriel Boric called him to join the cabinet.
This Friday, Marcel said that the intervention of the monetary entity had been appropriate and within the margin imposed by “his powers.
"As we know, the Central Bank is responsible for exchange rate policy in Chile and has used it (...) to contribute to financial stability."
“In recent days, volatility has increased in local financial markets, and that, by the way, is an element that adds to and goes beyond the fundamentals in the movement of the exchange rate.
It is what the Central Bank has cited to justify its decision, ”explained Marcel.
The Central Bank initiative considers the sale of dollars for an amount of up to 10,000 million, to which a similar figure will be added in foreign exchange hedging instruments.
The other 5,000 million dollars will go to a preventive offer of foreign currency.
The market reaction was immediate, even before the program came into force on July 18.
The dollar lost 70 pesos in the early hours of the morning in the Plaza de Santiago, evidence of the truce.
Chile is one of the most open economies in the world and is feeling the effects of the global crisis.
Its economy faces the risk of recession by 2023 and an increase in inflation of 12.5% in the last 12 months, the highest level since June 1994. Last Wednesday, the Chilean peso lost 3.98% of its value against to the dollar, in what was its biggest drop in 13 years.
President Boric then spoke of a "tremendously worrying" situation.
He attributed the collapse to the drop in the price of copper and "the prospects of recession in Europe and the United States together with the process in China, with the closure of cities that has lowered demand."
But he added the constituent process as an internal factor.
The convention handed Boric a draft constitution that must be approved on September 4 in a binding referendum.
The latest Pulso Ciudadano poll indicates that the "rejection" option adds up to 55.7% of the votes, which opens up political questions about the exit strategies to an eventual defeat of the new text.
“It is important that the different political actors give signs of certainty and that we are going to agree,” Boric said on Monday, when the pressure on the Chilean peso had become unmanageable.
He then asked that, whatever the result of the plebiscite, there be "conversations the day after so that the constitutional text generates the greatest possible unity."
This Friday, however, he changed his position and spoke of calling a new conventional election if the current text is not finally approved.
"If we win the alternative to rejection," Boric said, what will happen is that we will have to prolong this process for another year and a half, where everything will have to be discussed again from scratch.
There has to be a new constituent process.”
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