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Colombian Peso Jumps Most in Five Weeks on Cut in Dollar Rates

Colombia’s peso rose the most in five weeks after central banks including the Federal Reserve cut the cost of emergency dollar funding, helping ease strains in global financial markets and shore up demand for emerging-market assets.

The peso climbed 0.7 percent to 1,950.56 per U.S. dollar, from 1,963.39 yesterday. The gain, the biggest since Oct. 27, pared the currency’s drop this month to 4.4 percent.

Global stocks rose and emerging-market currencies strengthened after central banks of the U.S., the euro region, Canada, the U.K., Japan and Switzerland agreed to cut the cost of providing dollar funding via swap arrangements. The Fed also said in a statement today that policy makers decided to make other currencies available as needed. China announced earlier today it will cut the reserve requirement ratio for banks by 0.5 percentage point from Dec. 5.

“Latin American currencies are rallying,” said Daniel Lozano, an analyst at Serfinco SA brokerage in Bogota. “A boost in liquidity favors the foreign-exchange market.”

Increased demand for dollars, stemming likely in part by purchases of the currency as Grupo de Inversiones Suramericana SA pays for ING Groep NV’s Latin American assets, has led the Colombian peso to underperform, according to RBS Securities Inc.

The peso is down 0.8 percent in the last five days, compared with a 3.6 percent jump in the Mexican peso and a 3.1 percent increase in the Brazilian real in the same period.

‘Expect a Pullback’

Sura, as the parent company of Colombia’s biggest bank is known, said this week it raised 3.46 trillion pesos ($1.77 billion) in a share sale to help pay for the 2.7 billion euro ($3.6 billion) purchase of the ING assets.

“Our view has always been that the deal would ultimately generate dollar demand adding further weakness to the Colombian peso in an already seasonally weak quarter for the currency,” RBS strategists Flavia Cattan-Naslausky and Felipe Hernandez wrote in a report today. “We continue to like the Colombian peso and expect a pullback into a stronger flow related seasonal period in February and would use the recent move to scale into a short position in the” non-deliverable forwards curve, they wrote.

Easing inflation concerns in Colombia, spurred by the central bank’s move to boost the benchmark overnight rate last week, are helping fuel gains in bonds, according to Lozano.

The yield on Colombia’s 10 percent bonds due in July 2024 fell four basis points, or 0.04 percentage point, to 7.63 percent, according to the stock exchange. The bond’s price rose 0.373 centavo to 118.702 centavos per peso.

Banco de la Republica raised the overnight lending rate by 25 basis points to 4.75 percent on Nov. 25, making Colombia the only country in Latin America to raise rates in the past four months. Brazil started cutting borrowing costs in August as countries across emerging markets began to protect their economies from the global slowdown.

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