Colombia Yields Fall to One-Week Low as Bank Holds Rate Steady

Colombia’s peso bonds rose, pushing yields to a one-week low, as the central bank refrained from increasing borrowing costs, citing European debt turmoil.

“The central bank is much more focused on external risks in this statement,” said Omar Escorcia, an analyst at Asesores en Valores SA, a brokerage in Bogota. “Given the risks to growth, we shouldn’t see inflationary pressures or the need to raise interest rates soon.”

The yield on the country’s 10 percent peso-denominated debt due in July 2024 fell two basis points, or 0.02 percentage point, to 7.14 percent, according to the central bank. The price rose 0.212 centavo to 122.688 centavos per peso.

The central bank’s seven-member board, led by Jose Dario Uribe, voted unanimously to keep the overnight lending rate at a three-year high of 5.25 percent today, matching the forecast of all 26 analysts in a Bloomberg News survey. The higher risk of a “heavy recession” in Europe “increased the uncertainty on the central forecasts for Colombian growth,” policy makers said in a statement following the decision.

Banco de la Republica maintained its forecast for growth of about 5 percent this year after the economy expanded 5.9 percent last year.

While Escorcia expects policy makers to raise the target rate before year-end, he said he is dropping his call for a 50 basis point increase to 5.75 percent and is expecting a boost to 5.50 percent instead.

Peso Pares Gains

Colombia’s peso pared its gain after the central bank’s decision. It rose earlier as companies preparing to pay local taxes between June 8 and June 25 bought the currency.

“We’re going to continue to see increased dollar flows into Colombia” as companies bring in revenue from abroad to pay taxes, according to Escorcia.

The peso was little changed at 1,831.50 per U.S. dollar, according to the stock exchange’s electronic currency transactions system, known as SET-FX. With markets closed in the U.S. today, Colombia’s currency trades in the so-called next-day market, in which payment and delivery are made the following trading day.

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