July 27 (Bloomberg) -- Colombia’s peso posted its biggest weekly drop since May on speculation that the central bank would cut interest rates for the first time since 2010. Policy makers reduced borrowing costs today after trading ended.
The seven-member board, led by bank chief Jose Dario Uribe, voted to cut the overnight lending rate by a quarter percentage point to 5 percent, matching the forecast of 11 analysts surveyed by Bloomberg and heeding calls from Colombian President Juan Manuel Santos, who urged officials to cut rates after recent data showed the economy losing speed. Twenty-four analysts had expected policy makers to keep the rate unchanged.
Banco de la Republica also reduced its 2012 growth forecast to a range of 3 percent to 5 percent from a previous 4 percent to 6 percent forecast.
“What stands out the most to me is the drastic cut they made in the growth forecast,” said Daniel Velandia, the head analyst at the Correval SA brokerage in Bogota. “The market was already pricing rate cuts to 4.75 percent by the end of the year, but depending on growth the rate can even end at 4.5 percent.”
The peso slumped 0.7 percent this week to 1,791.56 per dollar. That’s its biggest weekly drop since the period ended May 18. It was little changed today and has jumped 8.2 percent this year, the best performance among all currencies tracked by Bloomberg.
While the central bank reiterated it will buy a minimum of $20 million daily in the spot market until at least Nov. 2, Finance Minister Juan Carlos Echeverry told reporters in Bogota that several board members voted to increase the daily dollar purchases.
The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 rose three basis points, or 0.03 percentage point, to 6.77 percent, according to the central bank. Yesterday the yield fell to 6.75 percent, the lowest level on a closing basis since the securities were first sold in 2009.
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