Colombia Peso Bonds Gain as Analysts Cut Inflation, Rate Outlook

Colombia’s peso bonds rose after economists lowered their 2012 inflation forecasts and said they expect additional cuts in borrowing costs this year, buoying demand for the fixed-rate securities.

The yield on the government’s 10 percent peso-denominated debt due in 2024 fell 2 basis points, or 0.02 percentage point, to 6.63 percent at 11:14 a.m. in Bogota, according to the central bank. The price rose 0.147 centavo to 127.231 centavos per peso.

Today’s rally in the benchmark bonds extend the decline in yields to 14 basis points since the central bank unexpectedly lowered the overnight lending rate a quarter percentage point to 5 percent on July 27. Policy makers will cut the rate to 4.75 percent this month and to 4.5 percent in February, according to the most frequent forecast among economists surveyed by the central bank for an Aug. 10 report.

“Given the good inflation readings and data showing the economy is slowing, the chances of rate cuts to 4.5 percent by year-end are rising,” said Daniel Velandia, the head analyst at Correval SA brokerage in Bogota. “Analysts continue to lower their inflation bets, which is also helping bonds.”

Annual inflation will end this year at 2.95 percent, according to the median estimate in the central bank survey of 38 economists, down from the previous month’s forecast of 3.08 percent. Policy makers target inflation between 2 and 4 percent this year.

Banco de la Republica last month lowered its 2012 economic growth forecast to a range of 3 percent to 5 percent, from its previous estimate of 4 percent to 6 percent, following reports showing industrial output fell for a third straight month in May, while exports slid 1.9 percent in June from a year ago.

The peso weakened 0.2 percent today to 1,793.3 per U.S. dollar, paring this year’s gain to 8.1 percent, the best performance among 170 currencies tracked by Bloomberg.

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

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