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Colombia Peso Falls as Santos Calls for `Bold' Push to Stem 17-Month Rally
Colombia’s peso fell the most in three months after President Juan Manuel Santos challenged the central bank to take steps to ease a rally that drove the local currency to a two-year high.
Santos told reporters today after meeting with policy makers that the rally is “worrisome” and that the central bank is studying measures to ease the peso’s gains. He declined to say what measures were discussed. In a speech yesterday, made four days after his Aug. 7 inauguration, Santos urged the central bank’s board to be “more creative, more bold” in stemming gains in the currency.
The peso fell 1.3 percent to 1,825.15 per U.S. dollar at 5:36 p.m. New York time, from 1,801.20 yesterday, for the biggest decline since May 14. The peso climbed to 1,797.35 earlier today, the strongest level since Aug. 8, 2008, and has rallied 12 percent this year, the best performance among 31 major currencies tracked by Bloomberg.
A peso stronger than 1,800 per dollar “increases the risk of the central bank intervening in the market,” said Daniel Velandia, head analyst at Bogota-based brokerage Correval SA. “Exporters have been increasingly vocal and, with Santos pushing for measures, we may see some kind of announcement.”
‘A Little Far’
Santos’s comments yesterday that he “will try and convince” the central bank’s board to ease gains in the peso echo former President Alvaro Uribe’s calls for the central bank to curb the rally which he said caused exporters to cut jobs. In October, Uribe asked policy makers to find a “solution” to the gains and said Colombia needs a “stable and competitive” exchange rate.
“Santos went a little far with his comments” yesterday, said Ricardo Bernal, head analyst at Medellin-based brokerage Serfinco SA. “He is probably trying to appease exporters that have asked for his help. Still, Santos is more of a technocrat and going forward his administration will probably look to work with the central bank and not attack it.”
Santos said today an independent central bank is important. It’s also key for the bank and the government to maintain “a dialogue and permanent collaboration,” he said.
The Association of Colombian Flower Exporters in a July 30 statement titled “Flower Growers Ask Where Is Banco de la Republica” asked the central bank to intervene in the currency market to avoid the loss of “hundreds” of jobs as the strengthening peso cuts revenue.
The Colombian Agriculture Society said in a statement yesterday that the peso’s rally causes “high unemployment and ruin in the Colombian countryside,” and asked the government to help “save” farmers.
‘Misaligned’ Peso
Banco de la Republica purchased $20 million a day between March 3 and June 30 to curb a rally policy makers said left the peso “misaligned.” Central bank chief Jose Dario Uribe said last month that policy makers haven’t ruled out “intervening in the market again.”
Correval’s Velandia forecasts the central bank will announce daily dollar purchases to ease gains in the peso. Corredores Asociados brokerage said in a report today Banco de la Republica may also lower its overnight lending rate, currently at a record low of 3 percent.
The strong peso is threatening to derail Santos’s campaign pledge to boost growth to 6 percent within two years -- from a projected 4 percent expansion this year -- and add 2.4 million jobs to lower a 12.8 percent unemployment rate that is the highest in Latin America.
‘Critical Situation’
“At these levels not only flowers and agriculture but a big part of the industry isn’t competitive abroad,” said Andres Jimenez, international sales director at Interbolsa SA, Colombia’s biggest brokerage. “If this continues we’ll have a critical situation where we’ll see a spike in unemployment and a lot of people encountering a lot of pain in the short term.”
Bets the peso will continue to gain are “risky,” Tony Volpon, head of emerging-market research for Americas at Nomura Securities International Inc. in New York, wrote in a report today.
“Colombia is a great story but, simply put, too much good news has been priced in and now the chances for intervention are rising,” Volpon wrote. “This coupled with the usually ‘narrow’ exit in the Colombian peso market, makes Long Colombian peso at current levels a risky proposition.”
The yield on the benchmark 11 percent bonds due 2020 rose one basis point, or 0.01 percentage point, to 7.31 percent, according to Colombia’s stock exchange. The bond’s price declined 0.054 centavo to 125.470 centavos per peso.
To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net
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