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Colombian Peso Surges as Central Bank Says Dollar Purchases Not `Imminent'
Colombia’s peso rose to an almost two-year high after the central bank said it has no “imminent” plans to buy dollars in the foreign-exchange market, resisting pressure to stem the world’s biggest currency rally this year.
Central bank chief Jose Dario Uribe said Aug. 20 that Banco de la Republica will buy dollars in the spot market to ease gains in the peso when it deems it “appropriate.” The lender decided against purchasing the U.S. currency after President Juan Manuel Santos earlier this month said he would seek to persuade policy makers to be “more creative, more bold” in stemming gains in the currency.
The peso rose 0.4 percent to 1,812.93 per dollar at 3:46 p.m. New York time, from 1,820 on Aug. 20. It touched 1,795.85 on Aug. 18, its strongest level since Aug. 8, 2008. The peso had dropped 0.7 percent in the three days ahead of the central bank’s monetary policy meeting. The peso’s 12.7 percent jump this year is the biggest among all currencies tracked by Bloomberg.
“The market’s expectations were too high,” said Camilo Perez, head analyst at Banco de Bogota SA, Colombia’s second- biggest lender. Still, “the main conclusion is that they will do something soon and that’s keeping the peso” below 1,800, said Perez.
The currency’s “very strong” appreciation this year is a result of increased dollar inflows amid higher prices for the nation’s exports of oil, coal and coffee, Uribe said.
Inflation Target
He said that while the central bank has “ample” capacity to “intervene,” policy makers also analyzed different tools the bank could use to take pesos out of the economy.
“Should the bank intervene in the future, it will have more capacity to do so without compromising the inflation target,” Uribe said.
Annual inflation was 2.24 percent in July, near the five- decade low of 1.84 percent posted in March. Inflation may end this year and next year at around 3 percent or less, Uribe said. The central bank targets 2010 inflation between 2 percent and 4 percent.
The central bank could sell part of its government bond holdings that amounted to 1.6 trillion pesos ($882.5 million) at the end of July to reduce the amount of local currency in the market, according to Uribe.
Banco de la Republica could also issue its own debt, Uribe said. Policy makers together with the government are also “studying other novelty instruments,” he said, while declining to say what these are.
‘Limited Intervention’
“The central bank’s ability to sterilize the purchases of dollars will remain limited and, thus, any potential interventions in the foreign-exchange market will also be limited,” Carola Sandy, an economist with Credit Suisse Group AG in New York, wrote in an Aug. 20 report.
The peso will likely strengthen “in the very short term,” she wrote. Credit Suisse revised its year-end forecast for the peso to 1,800 from 2,000 previously, according to the report.
The central bank purchased $20 million a day between March 3 and June 30, or $1.6 billion in total, to curb a rally policy makers said left the peso “misaligned.”
Colombia’s government peso bonds, known as TES, fell on expectations the central bank will sell some of its holdings of the securities, according to Perez.
The yield on the benchmark 11 percent bonds due 2020 rose six basis points, or 0.06 percentage point, to 7.16 percent, according to Colombia’s stock exchange. The bond’s price fell 0.471 centavo to 126.628 centavos per peso.
To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net
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