Nov. 24 (Bloomberg) -- Colombia’s peso bonds rose, sending yields to their lowest since April 2006, after the central bank unexpectedly cut its benchmark lending rate by a half a percentage point to boost economic growth.

The yield on Colombia’s 11 percent benchmark bonds due in July 2020 fell 19 basis points, or 0.19 percentage point, to 7.84 percent at 2:57 p.m. New York time, according to Colombia’s stock exchange. It earlier touched 7.80 percent, its lowest level since April 26, 2006. The bond’s price jumped 1.528 centavo to 122.191 centavos per peso.

“Should economic data continue to deteriorate and depending on how things evolve with Venezuela, there may be room for another 50-basis-point cut in December,” said Andres Jimenez, head analyst at brokerage Interbolsa SA in Medellin. “Given low inflation, there’s still room” for yields to fall in the long end of Colombia’s fixed-rate peso bond curve.

Banco de la Republica last night announced its decision to lower the overnight lending rate to a record low of 3.5 percent. Twenty-four of 33 economists surveyed by Bloomberg had expected the bank to keep rates unchanged, while four forecast the half- point cut and five predicted a quarter-point reduction. Below- target inflation, a plunge in retail sales and industrial output and tumbling exports to Venezuela provided leeway for a rate cut, said Jiminez.

‘Negative Effects’

Exports to Venezuela, Colombia’s second-biggest trading partner after the U.S., plunged 50 percent in September and have fallen 14 percent so far this year, according to the national statistics agency. Venezuelan President Hugo Chavez in July pledged to end imports from the neighboring nation, saying a plan to allow the U.S. military access to seven Colombian bases for anti-drug operations is a direct threat to his country.

The cut “seeks to firm up the economic recovery and reduce the negative effects from the fall in trade with Venezuela,” policy makers said in a statement yesterday. Sales to Venezuela are likely to drop more than 20 percent this year, central bank chief Jose Dario Uribe has said.

Annual inflation slowed to 2.72 percent last month, the lowest level since 1962. The central bank set its 2010 inflation target at 2 percent to 4 percent, lower than the target range of 4.5 percent to 5.5 percent for this year.

Retail sales fell 7.3 percent in September, the biggest drop since at least 2000, and exceeding economists’ forecast of a 0.3 percent decline. Industrial output fell for a sixth straight month in September, dropping 3.8 percent.

‘Remain Attractive’

Colombia’s peso fell 0.4 percent to 1,974.93 per U.S. dollar, from 1,967.50 yesterday. The currency has gained 14 percent so far this year.

The Colombian currency will “remain attractive” even after the central bank lowered rates because it’s backed by “solid fundamentals,” Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York, wrote in a report.

The peso will likely trade between 1,800 per U.S. dollar and 2,000 “over the next several weeks,” he wrote.

In Chile, the peso fell 0.3 percent to 493.95 per U.S. dollar, from 492.65 yesterday. The peso has strengthened 7.8 percent in the past month, the best performance against the dollar among all currencies tracked by Bloomberg.

The yield for a basket of Chile’s 10-year peso bonds in inflation-linked currency units, called unidades de fomento, was unchanged at 3.26 percent, according to Bloomberg composite prices.

Argentina, Peru, Venezuela

Argentina’s peso weakened 0.1 percent to 3.8014 per dollar from 3.7963 yesterday. The yield on the country’s inflation- linked peso bonds due in 2033 fell five basis points to 10.69 percent, according to Citibank Argentina.

Peru’s sol slid 0.3 percent to 2.8865 per dollar, from 2.878 yesterday. The yield on Peru’s 8.6 percent sol-denominated bond due August 2017 rose one basis point to 5.03 percent, according to Citigroup Inc.’s local unit.

Venezuela’s bolivar slid 0.2 percent to 5.46 per dollar in unregulated parallel market trading from 5.45 yesterday, traders said. Venezuelans buy dollars in the parallel market when they can’t get government authorization to purchase them at the official exchange rate of 2.15 per dollar.

To contact the reporters on this story: Andrea Jaramillo in Bogota at Ajaramillo1@bloomberg.net; Drew Benson in Buenos Aires at abenson9@bloomberg.net

Last Updated: November 24, 2009 15:14 EST