Colombia Peso Gains to One-Week High on Increased Inflow Bets

Colombia’s peso rose to the strongest in a week amid bets the U.S. Federal Reserve will implement a third round of asset purchases to bolster the world’s biggest economy, leading to increased inflows into the South American country.

The peso climbed 0.2 percent to 1,785.70 per dollar at 2:28 p.m. New York time, from 1,789.57 yesterday. Earlier it touched 1,777.89, the strongest level since Aug. 4. The currency climbed 0.2 percent this week, its biggest increase since the five days ended July 1.

“There’s a lot of speculation” the Fed will initiate a third round of stimulus measures, said Carlos Torres, head analyst at brokerage Asesores en Valores SA in Bogota. “Given interest rates will likely continue to rise in Colombia, people are betting some of that liquidity will come here,” he said.

The Fed pledged this week to keep its benchmark interest rate at a record low at least through the middle of 2013 in a bid to ignite the flagging economic recovery after a worldwide stock rout. The Federal Open Market Committee is ready to deploy a range of policy tools “as appropriate,” the body said in an Aug. 9 statement.

Banco de la Republica will raise its overnight lending rate to 5 percent by year-end, according to the average forecast in a survey published by the central bank today.

‘Very Worried’

Colombian policy makers are concerned about the possibility the Fed will start a third round of asset purchases, known as quantitative easing, Finance Minister Juan Carlos Echeverry said in an interview in Buenos Aires, where he is attending a meeting of regional finance officials.

“I’m very worried about the possibility of a QE3,” Echeverry said. “It could bring another phase of the currency war.”

South American countries need to strengthen regional trade and tools to help defend themselves from a global crisis, he said.

Colombia’s peso bonds rose, pushing yields to their lowest level since November, following gains in U.S. Treasuries and amid controlled inflation in the South American country.

The yield on Colombia’s 10 percent bonds due in July 2024 fell four basis points, or 0.04 percentage point, to 7.47 percent, according to data compiled by the nation’s stock exchange. That’s its lowest since Nov. 9. The bond’s price rose 0.367 centavo to 120.497 centavos per peso.

Investors “should be careful” as the benchmark bond due July 2024 approaches its record low of 7.38 percent, Torres said.

“Even though inflation remains under control, there are a lot of risks and uncertainties in external markets,” he said.

Economists expect Colombia’s inflation to end this year at 3.3 percent, according to a central bank survey. The forecast remained unchanged from the previous month.