Colombian Peso Declines on Bets for More Currency Intervention

Colombia’s peso fell amid mounting speculation that policy makers will increase dollar purchases to stem the currency’s rally.

The peso weakened 0.1 percent today to 1,790.52 per U.S. dollar, and dropped 0.2 percent this week. The decline pared the peso’s gain this year to 8.3 percent, the best performance after the Chilean peso among the most traded currencies in Latin America.

“Even with dollar flows coming in, the peso is trading at these levels as people bet on more dollar purchases,” said Guillermo Puentes, the head trader at Banco de Comercio Exterior de Colombia SA, known as Bancoldex.

Dealing with the peso’s appreciation in the midst of an international crisis is “very tough,” Finance Minister Juan Carlos Echeverry said in a speech in Cartagena yesterday.

Echeverry has said he asked the central bank to increase its daily intervention in the currency market to a minimum of $40 million from the current $20 million. Central bank chief Jose Dario Uribe reiterated July 27 that Banco de la Republica will keep buying at least $20 million daily in the spot market until at least Nov. 2.

Foreign direct investment in Colombia will likely rise to a record $17 billion this year, Echeverry also said yesterday.

The yield on the government’s 10 percent peso-denominated debt due in 2024 fell four basis points, or 0.04 percentage point, to 6.64 percent, according to the central bank. The price rose 0.348 centavo to 127.084 centavos per peso.

Central Bank Minutes

The yield has fallen 13 basis points since the central bank unexpectedly cut the overnight lending rate a quarter percentage point to 5 percent on July 27.

“The yield is pretty low, but the bet is we’ll see more rate cuts,” Puentes said. “In that case, there would still be room for the yield to fall further.”

Colombia’s central bank cited the probability of meeting its inflation target and weaker consumer spending and investment growth in its decision to cut interest rates last month, according to minutes to its July policy meeting.

“The combination of a moderation in the global economy, lower oil prices and weak domestic demand pushed the board’s balance from a neutral bias to dovish,” Nomura Holdings Inc. strategist Benito Berber wrote in a note to clients today. “BanRep is not hinting rate cuts in the immediate months. Thus, the timing of the cuts will be data- and event-dependent, in line with previous cycles.”

Berber forecasts policy makers will lower borrowing costs to 4.5 percent by year-end.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net