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Colombia Swap Rates Jump to 18-Month High After Cardenas Outlook

Colombia’s swap rates rose to an 18-month high as Finance Minister Mauricio Cardenas said he expected economic growth to accelerate, adding to speculation that the central bank will increase borrowing costs.

One-year swap rates climbed five basis points, or 0.05 percentage point, to 4.50 percent at 3:14 p.m. in Bogota, the highest level since December 2012. They are up three basis points this week.

Cardenas said today in an e-mailed response to questions that he projects the economy to expand about 5.5 percent in the first quarter from a year earlier after 4.9 percent growth in the last three months of 2013. His comments came a day after analysts surveyed by the central bank raised their annual inflation estimate to 3.39 percent from 3.19 percent.

“Investors are betting the central bank will raise rates faster and maybe even higher than they were initially forecasting,” Andres Pardo, the head analyst at Corp. Financiera Colombiana SA, said in a phone interview from Bogota. “Inflation expectations have risen significantly. It seems less likely we’ll see a pause in the hiking cycle.”

Banco de la Republica raised the overnight lending rate a quarter-percentage point for a second straight month in May to 3.75 percent.

The price on benchmark peso bonds due in 2024 fell 0.30 centavo to 126.92 centavos per peso today, pushing the yield up three basis points to 6.31 percent, according to central bank data. The yield has risen by the same amount since June 6.

Faster Inflation

Annual inflation accelerated to 2.93 percent in May, marking the fourth consecutive month that it was higher than analysts had forecast. The official target is 3 percent plus or minus one percentage point.

The peso posted its fourth straight weekly gain, rising 0.1 percent since June 6 to 1,881.60 per U.S. dollar. It dropped 0.4 percent today at the close in Bogota. The currency has jumped 8.8 percent in the past three months, the best performance in the world, data compiled by Bloomberg show.

A Gallup poll published last week indicated that former Finance Minister Oscar Ivan Zuluaga has 48.5 percent support before the June 15 presidential runoff, compared with 47.7 percent for incumbent Juan Manuel Santos. The poll of 1,200 people has a margin of error of 3 percentage points.

Santos and Zuluaga “do not have economic platforms that differ substantially, implying a stable and continuous economic policy,” Moody’s Investors Service said in a report yesterday.

Moody’s rates Colombia at Baa3, the lowest level of investment grade, with a positive outlook. Both Standard & Poor’s and Fitch Ratings rate Colombia one level higher at BBB.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Dennis Fitzgerald, Rita Nazareth

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