Colombia’s central bank says the conditions are in place for the peso to reverse its recent rally “sooner rather than later,” Governor Jose Dario Uribe said.
“The basic conditions of our economy point to a peso that is more devalued compared to the dollar than it is now,” Uribe said today at a press conference in Bogota. “I believe that at some point, I expect sooner rather than later, it will react in the opposite direction.”
The peso gained 1 percent to 1,839.34 at 12:01 p.m. in Bogota today, its strongest level in more than a year. The currency’s 4 percent rally over the last year is the biggest among major Latin American economies.
The central bank said on June 20 that it will buy as much as $2 billion in the third quarter, up from $1 billion from April to June. Uribe said today that a weaker currency would be good for the Colombian economy.
Increased purchases of Colombian financial assets by foreign investors have contributed to the rally, Uribe said. The economy is currently showing “enormous strength” and will probably register one of the fastest growth rates in Latin America this year, he said.
“Recently we’ve seen an important amount of foreign portfolio flows entering Colombia,” Uribe said. “This is the result of some foreign investors who see big opportunities in the country.”
The central bank raised its benchmark interest rate by a quarter point for a third straight month in June, pushing it to 4 percent, as policy makers withdraw stimulus to the region’s fastest growing economy.
Gross domestic product expanded 6.4 percent in the first quarter from a year earlier, its fastest pace in more than two years, led by a surge in government spending on public works projects. Colombia’s GDP growth outstripped Peru’s 4.8 percent rate in the first quarter, as well as Chile’s 2.6 percent and Brazil’s expansion of 1.9 percent.
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