Colombia Yields Fall to Record on Rate Cut Outlook; Peso Drops

Colombian peso bond yields fell to a record low on speculation the central bank may reduce borrowing costs further after an unexpected half-percentage point cut last week.

Yields on peso bonds due in 2014 dropped two basis points, or 0.02 percentage point, to 3.58 percent at 11:12 a.m. in Bogota, the lowest level on a closing basis since the securities began trading in 2009, according to the central bank.

Banco de la Republica accelerated the pace of reductions in borrowing costs when it cut the target lending rate by 50 basis points to 3.25 percent on March 22. Policy makers reduced benchmark borrowing costs by a quarter-percentage point at each of the four previous meetings. Last week’s decision surprised all 32 analysts surveyed by Bloomberg, with 27 of them forecasting another quarter-point cut last week while five projected no change.

“The move took everyone by surprise,” said Eduardo Bolanos, an analyst at Asesores en Valores brokerage in Bogota. “We’ve seen weak numbers out of Colombia so if these continue, this might not be the last cut.”

The unanimous rate decision was taken as the economy grows below potential, central bank Governor Jose Dario Uribe told reporters after the policy meeting. Finance Minister Mauricio Cardenas, who is also president of the bank’s board, said the reduction in borrowing costs will help the economy expand toward its potential growth rate of 4.8 percent per year.

The economy grew 4 percent in 2012 after expanding 6.6 percent in 2011. In January, industrial output declined and retail sales rose at their slowest pace since October, the national statistics agency reported March 22.

The peso slid today for a 10th straight session, depreciating 0.1 percent to 1,833.39 per U.S. dollar in the longest stretch of losses since August 2008. The currency has slumped 3.6 percent in the first quarter and was headed for a 1.1 percent decline this month.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.