Colombia’s peso rose, posting its biggest weekly jump since January, amid rising investment flows into the South American nation and as optimism Greece will avoid a default lifted demand for higher-yielding emerging-market currencies.
The peso climbed 0.5 percent to 1,762.30 per dollar at 3:33 p.m. New York time, from 1,770.78 yesterday. The currency jumped 1.8 percent this week, the biggest increase since the period ended Jan. 7.
“Risk appetite has improved a lot, helped by Greece,” said Po Jeng, an analyst at Interbolsa SA, Colombia’s biggest brokerage. “Foreign direct investment into oil and mining has increased significantly, and portfolio investment is also on the rise.”
Greece may receive as much as 85 billion euros ($123 billion) in a second bailout aimed at preventing default and ending the euro-region’s debt crisis, according to an Austrian Finance Ministry official.
Foreign direct investment jumped to $5.75 billion in the year through May, with 86 percent going into oil and mining, according to trade balance figures from the central bank. That compares to $3.68 billion in the first five months of 2010.
Foreign investment into stocks and bonds jumped eight-fold to $841 million in the five months through May from a year earlier, according to the central bank.
Central Bank Minutes
Colombia’s central bank said in minutes of its June 17 meeting that it discussed the peso’s appreciation and that one board member called on the 25 basis point increase to 4.25 percent to be the last in order to avoid widening the difference between Colombian and U.S. rates.
The rise in the rate differential has led to an “alarming” increase in overseas borrowing, the board member said, according to the minutes.
Overseas loans jumped to $3.9 billion in the year through May, up from $2 billion a year earlier, according to figures from the central bank.
Banco de la Republica may seek to limit foreign borrowing to ease gains in the peso, said Andres Pardo, the head analyst at financial services holding company Corp. Financiera Colombiana, known as Corficolombiana.
The minutes also showed “some” central bank board members consider that the current 4.25 percent overnight lending rate is “still expansionary.” The bank met before a June 23 report showed that the economy grew a faster-than-expected 5.1 percent in the first quarter.
“Considering the GDP report came out after the last central bank meeting, the odds are higher that most board members are going to vote for a rate increase,” said Pardo, who forecasts the central bank will raise the key rate to 4.50 percent in the July 29 monetary policy meeting. The bank may “pause after July to analyze the external context,” Pardo said.
The yield on Colombia’s 10 percent bonds due July 2024 rose 12 basis points, or 0.12 percentage point, to 7.87 percent, according to the stock exchange. The bond’s price dropped 1.115 centavos to 116.972 centavos per peso.