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Colombian Currency Posts Biggest Monthly Plunge Since 2011

Colombia’s peso posted its biggest monthly drop since September 2011, helping fulfill policy makers’ goal of a weaker currency, as a Chinese slowdown and pared U.S. stimulus accelerated outflows from emerging markets.

The peso plunged 4.3 percent in January, making it the seventh-worst performer among 24 emerging market currencies tracked by Bloomberg. It fell 0.2 percent to 2,015.93 per dollar today in Bogota, its weakest level since Dec. 2010.

Colombia’s central bank board voted unanimously to keep the overnight lending rate at 3.25 percent, matching all 27 forecasts compiled by Bloomberg. The bank, which bought an average $10 million a day this month and has said it will purchase as much as $1 billion this quarter, will probably stop buying dollars as the local currency falls, according to Camilo Perez, the head analyst at Banco de Bogota SA.

The peso selloff “is really about investors panicking,” Perez said. “It’s all about risk off.”

Turkey, South Africa and India raised interest rates this week amid a rout in developing-nation currencies sparked by concern that China’s economic growth is slowing and after the Federal Reserve started tapering.

The peso’s depreciation is “something we view as positive,” central bank Governor Jose Dario Uribe told reporters after the rate decision. Colombia has room for a weaker peso without stoking inflation, Uribe said.

‘Flexibility’

“It doesn’t make sense to continue buying dollars,” said Perez. “Its not necessary and given what is happening in global markets you shouldn’t risk having the peso weaken to levels that are a concern.”

Colombian consumer prices rose 1.94 percent last year, below the lower bound of the central bank’s inflation target range of 2 percent to 4 percent.

The central bank has the “flexibility” of continuing with the pace of its intervention or it can stop buying dollars, Finance Minister Mauricio Cardenas, who is also president of the bank’s board, told reporters after the meeting.

“The current exchange rate is at a level that we consider good news,” Cardenas said. “It has an important impact on farmers and industry. It gives us enormous tranquility.”

Yields on benchmark peso bonds due 2024 rose two basis points, or 0.02 percentage point, to 7.11 percent, according to data from 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: Brendan Walsh at bwalsh8@bloomberg.net

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