The government will employ “excess liquidity” from high tax receipts to buy dollars while they are cheap, Cardenas told reporters today in Bogota. He declined to say how much the treasury has bought so far, or how much it is planning to buy.
“We are reinforcing what the central bank is doing, as it buys dollars to accumulate international reserves,” Cardenas said. “We have a lot of liquidity available, because tax revenues have been very high.”
The peso weakened the most among major emerging markets this week, as the government began using its own money to accumulate foreign currency. Cardenas says the government is seeking a “competitive” peso rate to help the Andean nation’s exporters.
Policy makers are struggling to curb a rally triggered by JPMorgan Chase & Co.’s March 19 announcement that it could more than double Colombia’s weighting in two of its emerging-market bond indexes, fueling speculation that investors will pour money in the country. The central bank stepped up dollar purchases on April 21 to an average of $19 million per day, from an average of $10.5 million between April 1 and April 16.
“We intervene while we consider that the dollar is cheap, and the opinion of what is cheap depends on what we see as the peso’s long term equilibrium rate,” Cardenas said.
The government is adopting a more “aggressive approach” to prevent the peso from strengthening past the “psychological level” of 1,900 per dollar, said Siobhan Morden, head of Latin America fixed-income strategy at Jefferies Group LLC.
“We cannot rule out other measures to discourage FX strength with higher central bank intervention,” Morden wrote in a research report today. “We assume that officials will try to defend the 1,900 level with more aggressive intervention, though the latest weakness could prove only temporary against still pent up capital inflows into local debt markets.”
The central bank unexpectedly raised its policy rate a quarter point to 3.5 percent at its April meeting, the first increase in more than two years. With abundant global liquidity fueling appetite for high yielding assets in emerging markets, and with JPMorgan’s decision triggering demand for local bonds, this is a “difficult moment” to raise borrowing costs, Morden wrote.
The currency today strengthened 0.1 percent to 1,922.33 per U.S. dollar, paring its loss this week to 1 percent. The “ideal” exchange rate is between 2,000 and 2,200 pesos per dollar, President Juan Manuel Santos said May 12.
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