Colombia Peso Approaches 12-Week Low as Dollar Purchases Boosted

Colombia’s peso fell toward a 12-week low after the central bank said it will step up dollar purchases to $700 million by the end of September to stem the local currency’s gains.

The peso depreciated 0.5 percent to 1,823.17 per U.S. dollar in Bogota after touching 1,831.60 on Aug. 16, the weakest level since June 1. It pared this year’s rally to 6.3 percent, still the best performance after the Hungarian forint and Chilean peso among all currencies tracked by Bloomberg.

The increase announced Aug. 24 boosts central bank dollar purchases through September to an average of $28 million a day. The bank had said it would buy a minimum of $20 million a day in the spot market until at least Nov. 2. The Treasury began its own program of foreign currency intervention this month to help exporters.

“Authorities are clearly worried about the exchange rate, having moved from rhetoric to action,” Benito Berber, a Latin America strategist at Nomura Holdings Inc., said in a phone interview from New York. “It will be difficult for the peso to appreciate with this new element and given volatility in external markets.”

Colombia’s central bank also on Aug. 24 unanimously voted to cut the overnight lending rate by a quarter-percentage point for a second straight month to 4.75 percent. The decision matched the forecasts of 29 of 33 analysts surveyed by Bloomberg, with the others projecting no change.

Treasury Purchases

The Treasury will continue to buy dollars this week to weaken the peso, outgoing Finance Minister Juan Carlos Echeverry said last week. While declining to say how much the Treasury would purchase in total, he said it would buy $200 million last week on top of the $300 million bought earlier. Colombia’s bank deposit-guarantee fund, known as Fogafin, purchased $200 million over the past few weeks, Echeverry said last week.

Berber predicts the peso will weaken to about 1,825 per dollar at the end of the year.

Echeverry, who resigned last week citing personal reasons, is being replaced by Mauricio Cardenas, an economist trained at the University of California at Berkeley who currently serves as mines and energy minister.

Colombia’s interbank interest rate is higher than the central bank’s target rate, creating an opportunity for policy makers to step up their purchases of dollars, central bank chief Jose Dario Uribe said today in an interview with Javeriana Radio.

The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 was little changed at 6.62 percent.

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