Colombian Peso Advances Most in Two Weeks on Fed Stimulus Bets

Colombia’s peso rose the most in two weeks on speculation the Federal Reserve will take action to bolster growth in the world’s biggest economy.

The peso climbed 1.1 percent to 1,770.50 per dollar, the biggest increase on a closing basis since June 5. The peso has jumped 9.5 percent this year, the best performance among all of the 170 currencies tracked by Bloomberg.

“After the Greek elections, the market is fairly optimistic on what can come out of the Fed meeting,” said Camilo Perez, the head analyst at Banco de Bogota, the nation’s second-biggest bank.

Greek politicians may agree today to form a government and seek relief from austerity measures imposed as a condition for bailout loans, probable coalition partners said. Twelve of 21 primary dealers who trade with the U.S. central bank expect some form of added stimulus from the Fed meeting today and tomorrow, while nine expect no action.

Fitch Ratings said in a statement today that it kept Colombia’s credit rating at BBB-, the lowest level of investment grade, with a stable outlook.

“One year after Fitch upgraded Colombia to investment grade status, the sovereign’s credit metrics continue to improve,” Fitch director Erich Arispe said in the statement. “However, increased risk aversion and uncertainty regarding the outlook of the global economy create downside risks to Colombia’s growth, exports and fiscal accounts, thereby constraining the sovereign’s positive rating momentum.”

Dollar Inflows

Colombia’s consolidated budget deficit, which includes states, municipalities and state-run companies, will narrow to 1 percent next year, from 1.2 percent this year and 2 percent in 2011, Finance Minister Juan Carlos Echeverry said last week.

Colombia has been less successful than other countries in the region at curbing currency gains, Echeverry told lawmakers last week. More central bank intervention in currency markets is compatible with low and stable inflation, he said.

Central bank chief Jose Dario Uribe said in an interview last week that Colombia wants a weaker exchange rate and that policy makers won’t rule out bigger dollar interventions. The bank’s next monetary policy meeting is scheduled for June 29.

Increased dollar inflows as companies bought pesos to pay for local taxes between June 8 and June 25 have helped fuel the local currency’s rally, according to Perez. After tax payments end this month, the peso will probably weaken in line with other currencies in Latin America, he said.

‘More Vulnerable’

“It will become more vulnerable to movements in external markets,” Perez said. “In that sense, more currency measures won’t be necessary.”

Banco de la Republica has said it will buy a minimum of $20 million daily in the spot market until at least Nov. 2, while the government is keeping abroad dividends from state-run oil company Ecopetrol SA to avoid strengthening the peso.

The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 was little changed at 7.06 percent, according to the central bank. The bond’s price rose 0.016 centavo to 123.402 centavos per peso.

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