WRAPUP 3-Chile Q2 growth surges, gov’t warns on strong peso

* Economy rebounds from quake, but monthly pace slowing

* Economy seen expanding by 6 pct in second half yr/yr

* Peso firms after data amid increased dollar inflows

* Government wants competitive peso, keeping close eye
(Updates with Finance Minister comments, peso eases)

By Molly Rosbach and Fabian Cambero

SANTIAGO, Aug 18 (BestGrowthStock) – Chile’s economy expanded at
the fastest pace since the mid-1990s in the second quarter from
the previous quarter, the Central Bank said on Wednesday, while
the government voiced worry at the peso’s sharp appreciation.

Gross domestic product expanded by a slightly bigger-than
expected 4.3 percent in the second quarter compared with the
first quarter, showing the economy of the world’s top copper
producer has rebounded after a massive February earthquake.

Second quarter seasonally adjusted growth was the fastest
since at least 1996, according to central bank data.
(http://si2.bcentral.cl/Basededatoseconomicos/951_417.asp?m=CN_B03_22&f=T&i=E)

The economy grew by 6.5 percent in the second quarter
compared with the same period in 2009 (CLGDPQ=ECI: ), stronger
than analysts’ median forecasts for a 6.2 percent rise during
the period from a year earlier according to a Reuters survey,
and the fastest year-on-year quarterly pace since 2005. For a
preview, see [ID:nN16269140]

However, June growth data released earlier this month
showed the pace of the recovery from the quake is slowing. For
more, see [ID:nN05273094]. The growth data reinforced views the
central bank will hike its key rate by another 50 basis points
next month.
<------------------------------------------------------ For Chile peso scenarios, see [ID:nN17124678] For a Chile peso graphic, see http://link.reuters.com/wex55n For a Latam forex graphic, see http://link.reuters.com/ged55n ------------------------------------------------------->

Finance Minister Felipe Larrain told reporters the data
pointed to full-year 2010 growth of close to 5 percent from a
year earlier, the upper end of the government’s 4.5-5.0 percent
forecast range.

“We think the vigor of the Chilean economy is very potent,
which shows investment in particular is recovering,” Larrain
said. He also voiced concern about a sharp rally in the peso to
7-month highs, saying the government wanted a competitive
peso.

Larrain said he would discuss the exchange rate at a
regular meeting with central bank later on Wednesday.

VERBAL INTERVENTION

“I want to stress we are acting only with words,” Larrain
said. “We will do all we can regarding the exchange rate with
our policies, and will closely follow its evolution,” he added.
The peso (CLP=CL: ) eased slightly from new 7-month highs after
he spoke.

Larrain’s comments came after President Sebastian Pinera
last week warned he was worried about the peso’s rise. For
more, see [ID:nN12124343]

Currency traders said growth data helped lift the peso
(CLP=CL: ), but it later eased after Larrain’s comments on the
currency. The peso has risen around 3 percent in August alone.

The market sees the central bank intervening with dollar
purchases if the peso, one of Latin America’s top performers,
pushes past 480 per dollar.

“Given the strength in domestic demand, I don’t think the
bank can afford to delay rate hikes on concerns about peso
strength,” said Alonso Cervera, Latin America chief economist
at Credit Suisse. “They may look at other options to try to
reduce the pace of peso appreciation, but certainly not via the
policy rate.”

Still, likely intervention in South America to stem surging
currencies in the future could ultimately put the breaks on a
regional rate up-cycle. [ID:N17270580]

The market is starting to reach consensus that the central
bank will likely hike rates aggressively after three
consecutive increases of 50 basis points. For more, see
[ID:nN12145806]

“This (GDP) will likely reinforce the idea that the pace of
monetary policy normalization will be a bit faster than
previously thought,” said Alejandro Puente, an economist with
BBVA in Santiago.

“We now can finally say that we have reached pre global
crisis levels, so from now on we should start seeing some
inflationary pressures.”

The central bank is known for its tough stance on
inflation, although consumer price increases have been
relatively tame despite a steady economic recovery.

The bank said economic growth was led by the retail sector,
also citing dynamism in the electricity, gas, water,
telecommunications and transport sectors.

The central bank also revised up its reading for first
quarter year-on-year growth to 1.5 percent from the 1.0 percent
it had reported previously.

It said the current account surplus narrowed sharply to
$46.8 million in the second quarter, compared to a $1.28
billion surplus in the first quarter.

A lower surplus is due mainly to a significant increase in
imports, which rose 46 percent in the quarter from a year ago.
(Additional reporting by Brad Haynes, Antonio de la Jara,
Alonso Soto, Maria Jose Latorre and Bianca Frigiani. Writing by
Simon Gardner; Editing by Diane Craft)

WRAPUP 3-Chile Q2 growth surges, gov’t warns on strong peso