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Colombian Peso Gains for Second Day on Bets for Rising Inflows

Colombia’s peso rose for a second day on speculation investment flows into Latin America will increase after Brazil’s foreign debt rating was raised one level by Moody’s Investors Service.

The peso advanced 0.3 percent to 1,787.40 per U.S. dollar at 3:16 p.m. New York time, from 1,791.80 on June 17. That’s its biggest increase since June 14 on a closing basis. The peso has jumped 6.7 percent this year, the best performance among the six most-traded currencies in Latin American

Moody’s today lifted Brazil’s rating to Baa2, the second-lowest investment grade, from Baa3, citing President Dilma Rousseff’s efforts to cut spending in Latin America’s biggest economy. The outlook is positive.

“There’s a certain amount of herd effect,” said Camilo Perez, head analyst at Banco de Bogota SA, the nation’s second-biggest bank. “While we’re seeing upgrades in the region, Europe is seeing downgrades. That divergence in perceptions should continue to attract capital into Latin America.”

Colombia was raised to the lowest level of investment grade by Standard & Poor’s on March 16 and by Moody’s on May 31.

The yield on Colombia’s 10 percent bonds due July 2024 was little changed at 7.79 percent, according to Colombia’s stock exchange. The security’s price rose 0.014 centavo to 117.712 centavos per peso.

‘Less Hawkish’

The central bank’s “less hawkish” statement following its June 17 monetary policy meeting may be an indication policy makers will leave interest rates unchanged next month, Perez said. He forecast the key rate will be raised to 5 percent by year-end.

Banco de la Republica’s seven-member board, led by bank chief Jose Dario Uribe, increased the overnight lending rate by a quarter point to 4.25 percent, meeting expectations of 22 of 23 economists surveyed by Bloomberg. One analyst expected the rate to remain unchanged.

The “strong drop” in first quarter investment in public works was unexpected and is likely temporary, the central bank said in the statement. Policy makers also highlighted that business and consumer confidence have dropped.

Bets on a rate pause likely will lead to gains in government peso bonds, known as TES, Perez predicts.

“People aren’t worried about inflation,” said Perez. “A pause would be well received.”

Annual inflation quickened to 3.02 percent in May, within the central bank’s 2 percent to 4 percent target for this year.

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