More monetary stimulus programs from the Federal Reserve or the European Central Bank will force Latin American currencies to over-appreciate, Chile Finance Minster Felipe Larrain told CNBC on Thursday.
With the Federal Reserve widely expected to announce a further round of quantitative easing at its policy announcement later on Thursday, Larrain said he was concerned such steps will cause the Chilean peso to spiral higher.
“If you are putting more money, more euros, more dollars, into the system, the question is, against which currencies can those currencies depreciate?” he asked in an exclusive interview with CNBC’s “European Closing Bell."
He replied: “A bunch of successful emerging economies, higher middle income countries like Chile, Brazil, Columbia, Peru, and a group of small industrialized countries like Australia, New Zealand — and I would also say Canada — will feel the pressure of quantitative easing.”
In 2011, the Central Bank of Chile bought $12 billion in reserves in attempt to quell the peso’s appreciation against the dollar.
Larrain added that China’s renminbi was unlikely to over-appreciate against the dollar or the euro if more quantitative easing takes place, because “that’s not right according to market forces.”
Larrain said Chile’s economy is also vulnerable to a China slowdown. “China absorbs almost a quarter of our exports. Over 80 percent of that is copper, so suddenly we depend on Asia, we depend on China. If you put together all of Asia, almost half of our exports go to Asia.”
He added: “What we are seeing in China is a deceleration but not a hard landing. That is an important point, as we will see forces decelerating copper prices. Now we have copper prices around $3.60. Last year, they were over $4.”
To view copper prices,click here.