Colombia Peso Falls as Central Bank May Double Dollar Purchases

Colombia’s peso fell the most in two weeks after central bank co-director Cesar Vallejo said policy makers are considering doubling daily dollar purchases to $40 million to curb the currency’s rally.

The peso slid 0.5 percent to 1,803.19 per U.S. dollar, paring this year’s gain to 7.6 percent. That’s still the best performance after the Chilean peso among 170 currencies tracked by Bloomberg.

Vallejo’s comments in an interview yesterday come after Finance Minister Juan Carlos Echeverry urged Banco de la Republica to raise minimum daily dollar purchases from $20 million, saying a strengthening peso threatens to undermine local industry and farmers. Last month the central bank reversed course and unexpectedly cut borrowing costs for the first time since 2010 to buoy growth.

“Investors are carefully watching the risk of currency intervention,” said Bernd Berg, an emerging-markets strategist at Credit Suisse Group AG in Zurich. With growth momentum declining and officials seeking to weaken the peso to support exporters, traders “turn more cautious on the medium-term outlook for the currency,” he said.

Colombia’s central bank also lowered its 2012 economic growth forecast on July 27 to a range of 3 percent to 5 percent from a range of 4 percent to 6 percent. The quarter-point cut in the overnight lending rate to 5 percent surprised 24 of 35 economists surveyed by Bloomberg.

The peso will likely trade in a range between 1,780 and 1,830 over the next couple of months, Berg predicts.

The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 closed unchanged at 6.64 percent, according to the central bank.

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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