International Reserves Replacement and Expansion Program
In an unexpected decision, the Central Bank of Chile announced today the purchase of US$ 12 billion in the spot market with the goal of increasing international reserves to 18% of GDP (the highest figure since 2003). The Central Bank plans to buy US$ 40 million per day over a period of 15 months. The daily purchases are sufficiently small so as not to alter the liquidity of the domestic exchange market.The timing of this measure seems somewhat odd given the extreme levels of uncertainty. There is no urgent need to increase reserves, currently at about 16% of GDP, and especially since the Central Bank has access to a US$ 24 billion Liquidity Credit Line agreed with the International Monetary Fund. Moreover, the statement implies that the Bank does not intend to renew this credit line next year, which also raises questions. It is worth noting that even in the most stressful moments, the Central Bank's foreign currency sales have been significantly less than US$ 12 bn.Before the announcement and after having depreciated in the last few days, the peso was at reasonable values, according to what our short- and medium-term models indicate. After the announcement, the exchange rate rose 2% to slightly over 740 pesos per dollar. We believe that in the absence of other events (ceteris paribus), this depreciation would be transitory.