By Fabian Cambero
SANTIAGO, Jan 13 (Reuters) - Chile's central bank announced on Wednesday a plan to purchase $12 billion over the next 15 months to replenish and expand the country's foreign currency reserves.
The bank said it would take the step ahead of the closing off in mid-2022 of a flexible, $24 billion credit line extended by the International Monetary Fund (IMF) in May last year to help mitigate potential turbulence emanating from the coronavirus pandemic.
"The board considers it prudent to initiate a process that allows it to replace the role of the FCL (flexible credit line) by gradually accumulating international reserves," the bank said in a statement.
"Starting next week, the bank will implement a gradual program for the purchase of foreign currency for $12 billion."
It said $2.550 billion of that amount corresponded to the portion of reserves sold off between December 2019 and January last year to prop up the local currency following massive social protests that broke out in October 2019.
The rest is the amount necessary for reserves to represent 18% of gross domestic product, the bank said.
The bank said it would buy $40 million a day for the next 15 months through competitive auction, and that the monetary effects of the measure would be mitigated by other tools at its disposal, without specifying what these might be.
"The monetary effects of this measure will be sterilized in magnitudes consistent with the orientation of the monetary policy," explained the bank, which could adjust the plan according to market conditions.
The announcement caused the Chilean peso, which has been gaining ground in recent weeks, to open the session with a fall of 2.12% to 742.20 / 742.50 pesos to the dollar. (Reporting by Fabian Cambero. Writing by Aislinn Laing. Editing by Mark Potter)