Colombian Peso Falls to One-Week Low on Interest-Rate Outlook

Colombia’s peso fell to a one-week low amid speculation the central bank will leave interest rates unchanged after inflation unexpectedly slowed in March.

The peso declined 0.6 percent to 1,793.90 per U.S. dollar, from 1,783.88 yesterday. Earlier it touched 1,799, its weakest level since March 29. The peso has jumped 8.1 percent this year, the best performance among 25 emerging-market currencies tracked by Bloomberg.

“Traders are pricing in a prolonged pause in rates after the surprise in inflation and as inflation expectations drop,” said Daniel Escobar, head analyst at Global Securities brokerage in Bogota. “That is helping the peso weaken as fewer hikes mean less incentives to bring in dollars.”

Colombian policy makers meeting last month were divided over the need to raise interest rates in the future to keep inflation in check, minutes of the meeting, published April 4, showed. The seven-member board voted unanimously March 23 to keep the overnight rate at 5.25 percent, the minutes showed. Banco de la Republica has raised the benchmark rate nine times since February 2011 from a record-low 3 percent. The next monetary policy meeting is scheduled for April 30.

Speaking to lawmakers today, Finance Minister Juan Carlos Echeverry said the government and the central bank want to avoid job losses stemming from the peso’s rally and that Colombia needs to consider “all the alternatives” to help stem gains.

The currency has reached a “worrying” level, Echeverry wrote in an April 8 opinion column published in El Tiempo newspaper.

Dollar Purchases

Colombia needs to weigh a “strategy that is richer in objectives and instruments” that combines the inflation target with a “more intensive sterilized intervention,” Echeverry, who is also president of the central bank’s board, wrote.

The central bank has said it will purchase a minimum of $20 million daily in the spot market until at least Aug. 4 in a bid to stem the peso’s rally.

Annual inflation slowed to 3.4 percent in March, the national statistics agency said in an April 4 report, down from 3.55 percent in February and less than the 3.63 percent median estimate among economists surveyed by Bloomberg. Banco de la Republica targets inflation between 2 percent and 4 percent this year.

The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 rose two basis points, or 0.02 percentage point, to 7.15 percent, according to the central bank. The price fell 0.179 centavo to 122.736 centavos per peso.

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