Colombia’s Peso Advances Most in Three Weeks After Surprise Rate Increase

Colombia’s peso jumped the most in three weeks and bond yields rose after the central bank unexpectedly raised interest rates in a bid to keep inflation in check.

The peso advanced 1 percent to 1,800 per U.S. dollar at 8:07 a.m. in Bogota, from 1,817.75 yesterday, the biggest gain on a closing basis since Jan. 10. The currency market closed yesterday before the central bank raised the overnight interest rate by 25 basis points to 5 percent, a move forecast by only one of 32 economists surveyed by Bloomberg. The rest predicted no change in rates.

Yields on the government’s peso bonds due May 2014 rose 13 basis points, or 0.13 percentage point, to 6.21 percent, according to data from the country’s stock exchange.

The rate increase is the eighth since the beginning of last year as Colombia’s central bankers seek to cool the fastest economic growth in five years and prevent an inflation pickup, even as their counterparts from Brazil to Indonesia trim interest rates to fend off the effects of Europe’s debt crisis.

The surprise move follows a 25-basis-point increase in November, when the seven-member board, led by central bank chief Jose Dario Uribe, cited the need to bolster credibility amid rising inflation expectations. Policy makers kept the rate on hold in December.

To contact the reporters on this story: Blake Schmidt in Bogota at bschmidt16@bloomberg.net Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net Joshua Goodman at jgoodman19@bloomberg.net

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