Colombian Yields Fall to One-Week Low as Key Rate Kept at 5.25%

Yields on Colombian bonds fell to a one-week low as the central bank refrained from increasing borrowing costs at a meeting today.

The seven-member board, led by bank chief Jose Dario Uribe, kept the overnight lending rate at 5.25 percent, matching the forecast of all 29 economists surveyed by Bloomberg. Investors bought fixed-rate securities to lock in yields ahead of the central bank announcement, which was made after the 1 p.m. close in Bogota of foreign-exchange and bond markets. Uribe also said the central bank extended its daily dollar purchases for at least three more months to Nov. 2, part of an effort to weaken the peso and bolster exports.

“The economy is growing but not as much as last year, and inflation is under control,” said Francisco Chaves, a strategist at brokerage Corredores Asociados in Bogota. “The central bank has room to wait and see what future data show.”

The yield on Colombia’s 9.25 percent peso-denominated debt due in May 2014 fell one basis point, or 0.01 percentage point, to 5.82 percent, according to the central bank. That’s the lowest level on a closing basis since April 20.

Banco de la Republica has raised the benchmark rate nine times since February 2011, bringing it up from a record low 3 percent. Policy makers will raise the target rate to 5.5 percent by year-end to curb lending, Chaves forecasts.

While the pace of growth in consumer lending has fallen “slightly, it’s still not a significant” drop, Uribe told reporters.

Consumer Credit

“Inflationary risks originating from expectations have moderated,” the central bank said in the statement announcing the decision. “Those that may come from the behavior of consumer credit prevail.”

In a bid to ease gains in the peso, Banco de la Republica will buy a minimum of $20 million daily in the spot market until at least Nov. 2, extending the program by three months, Uribe said.

Colombia’s central bank can issue bonds to reduce liquidity in the market, according to a resolution published today on its website. The statement came after policy makers announced the extension on its daily dollar purchase plans.

The peso rose 0.1 percent to 1,762, from 1,764.40 on April 27. It advanced 1.5 percent this month and has rallied 10 percent this year, the second-best performance after the Hungarian forint among all currencies tracked by Bloomberg.

Chaves predicts the peso could appreciate toward 1,733 by the beginning of June as foreign investment rises.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE