Finance ministry says it will auction US dollar deposits

Wednesday, October 8, 2008

Chile's finance ministry is working with the country's central bank to auction government deposits in US dollars as it expects to receive more revenues in greenbacks.

In a press release, the finance ministry said it expects US dollar revenues to increase as it has promoted paying taxes in that currency among Chilean export companies, but declined to say when it would begin making deposits in local banks.

Last week, the finance ministry carried out a US$1.05bn liquidity injection into the banking system by making short-term deposits in the system's four largest players.

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The move was widely criticized in both political and banking circles as it was not open to other players and left a number of mid-sized banks out of the deal.

In the press release, finance minister Andrés Velasco said the decision was taken as a large sum of deposits held by Chile in the US matured and US-dollar interest rates in the country last week were more attractive than those in the US market.

Speaking before congress on Wednesday, central bank chief José de Gregorio said the level of reserves managed by the monetary entity is enough to provide the liquidity needed to the country's banking system.

"Chile's financial system should be capable of seeking funds on international markets, which has been the case for quite a few years now. However, should access to financing and external liquidity tighten, the central bank is well prepared and equipped to act decisively," he said.