By Adam Kritzer for Forexblog.orgA few years ago, I wouldn’t deign to discuss such obscure currencies as the Chilean Peso and the Peru New Sol. But this is a new era! These currencies – and their Central Banks – are being thrust into the spotlight as they join more established Latin American countries in the fight to contain currency appreciation.
Major Latin American currencies have collectively appreciated more than 29% since March 2009. (When researching this post, I discovered the fantastically apropos JP Morgan Latin American Currency Index, which is based on the currencies of Mexico, Columbia, Brazil, Argentina, Peru, and Chile, and is displayed in the chart above). That includes a nearly 45% gain in the Brazilian Real and a 30% rise in the Mexican Peso, with more modest gains by the Peru New Sol, Chilean Peso, and Colombian Peso. The Argentinean Peso seems to be dragging the entire index down, having never recovered from the sovereign debt default in 2008.
Over this period, capital has poured into Latin America: “Net private inflows surged to $203.4 billion last year from $57.5 billion in 2003, according to the World Bank. Stock market indices in the region are closing in on all-time highs, and bond prices have risen (i.e. 32% gain in Colombian bonds in 2010) to such an extent that spreads to Treasury Securities – the most common comparison – have narrowed to record lows. Perhaps this not for naught, as the region recorded economic growth of 5.7% in 2010 on the basis of rising commodities prices, aggressive/fiscal policies, and an overall global economic recovery.
Faced now with rising inflation (6% in Brazil, 4.5% in Chile, 11%+ in Argentina, etc.) and declining export competitiveness, Latin American countries have moved to.. Read full article
