Colombia’s shorter-term benchmark peso bonds fell to a three-year low as faster-than-forecast economic growth added to speculation that the central bank will increase borrowing costs further to curb inflation.
The price of securities maturing in October 2015 dropped 0.17 centavo to 103.67 centavos per peso at the close in Bogota, the lowest level since May 2011, according to data from the central bank. The yield climbed 12 basis points, or 0.12 percentage point, to 5.10 percent. The peso rose 0.4 percent to 1,882.50 per U.S. dollar.
The national statistics agency reported today that the economy expanded 6.4 percent in the first quarter from a year earlier, higher than the 5.2 percent median growth forecast of analysts surveyed by Bloomberg. Bank of America Corp. said it now expects policy makers to increase borrowing costs tomorrow by a half-percentage point to 4.25 percent while JPMorgan Chase & Co. didn’t rule out such an outcome.
“The expansion is likely to continue strongly into the remainder of the year, and policy makers have openly started to discuss whether the economy is overheating,” Francisco Rodriguez, Bank of America’s senior Andean analyst, wrote in a research report. He now expects the central bank to lift the overnight rate to 5 percent by yearend.
Annual inflation accelerated to 2.93 percent in May, marking the fourth consecutive month that it was faster than analysts had forecast. The country’s official target is 3 percent plus or minus one percentage point.
Colombia will raise borrowing costs by a quarter-percentage point to 4 percent in a third straight increase, according to 26 of 28 economists surveyed by Bloomberg. While Bank of America expects a half-percentage point increase, Profesionales de Bolsa projects no change.
JPMorgan revised its 2014 growth forecast to 5 percent from a previous 4.6 percent, and Bank of America changed its estimate to 5.1 percent from 4.4 percent.
With today’s rally, the peso extended its jump in the past three months to 6.8 percent, the best performance among 24 emerging-market currencies tracked by Bloomberg.
Colombia has more tools to curb the peso’s gains, Finance Minister Mauricio Cardenas told reporters today after the Treasury joined the central bank last month in purchasing dollars. Banco de la Republica has said it will buy as much as $1 billion in the second quarter.
“We continue to buy dollars, and we’re thinking about additional mechanisms to reinforce the currency purchases,” Cardenas said.
The central bank will probably announce another three-month extension to the dollar program and increase the upper limit to as high as $2 billion, Bank of America predicts.
To contact the reporter on this story: Andrea Jaramillo in Bogota at firstname.lastname@example.org