Colombia’s peso fell as speculation mounted that the central bank will increase dollar purchases to stem the local currency’s rally.
The peso weakened 0.1 percent to 1,788.78 per U.S. dollar, paring its gain this year to 8.4 percent, the best performance after the Chilean peso among the most traded currencies in Latin America.
Colombia’s central bank is discussing the need to increase daily dollar purchases to damp a rally in the peso that threatens to undermine local industry and farmers, Finance Minister Juan Carlos Echeverry told reporters yesterday. Echeverry said he has asked the central bank to increase its daily intervention in the currency market to a minimum of $40 million from the current $20 million.
“The peso has been trading in a range as the risk of intervention keeps investors from” betting on further gains in the peso, said Andres Munoz, the head currency trader in Bogota at Corp. Financiera Colombiana. “There is room to increase dollar purchases and we’ll see that happen as the peso approaches 1,770.”
Echeverry said in an Aug. 3 interview that increased daily dollar purchases and higher spending on infrastructure in the second half will help Colombia achieve his growth target of as much as 4.8 percent this year.
Central bank chief Jose Dario Uribe reiterated July 27 that Banco de la Republica will keep buying a minimum of $20 million daily in the spot market until at least Nov. 2. In a speech in Cartagena today, Uribe said intervention by central banks can correct moves caused by speculation.
Munoz predicts policy makers will increase dollar purchases to as much as $50 million a day as the peso strengthens toward 1,770. He forecasts the currency will slide to as weak as 1,830 within the next two to three months.
Expectations for lower dollar inflows as rebel attacks on Colombia’s oil pipelines cut production are also helping pare gains in the peso, according to Munoz.
Sabotage of pipelines owned by Ecopetrol SA led the state-run oil company to cut this year’s crude output target. Rebel groups more than tripled assaults on pipelines to 67 in the first half of this year, according to government figures.
The yield on the government’s 10 percent peso-denominated debt due in 2024 rose one basis point, or 0.01 percentage point, to 6.68 percent, according to the central bank. The price fell 0.082 centavo to 126.736 centavos per peso.