Colombia Peso Falls as the Central Bank Extends Dollar Purchases

Colombia’s peso fell as the central bank extended its plans for dollar purchases in a bid to ease the local currency’s rally.

Banco de la Republica will buy a minimum of $3 billion between Oct. 1 and March 29, in amounts of at least $20 million per day, central bank chief Jose Dario Uribe said after the close of market. He also announced the bank’s board decided by a majority vote to leave the overnight lending rate unchanged at 4.75 percent, matching the forecast of 22 analysts surveyed by Bloomberg. Twelve had expected a 25 basis point cut.

The peso fell 0.1 percent to 1,800.53 per U.S. dollar. The currency has weakened 0.9 percent in the third quarter and rallied 7.7 percent this year.

“The market was expecting an announcement of this sort,” said Juan Camilo Santana, an analyst at Cia. de Profesionales de Bolsa brokerage. “While this may lead the peso to weaken in the short term, the interest rate differential and appetite for Colombia will continue to attract dollars into Colombia.”

The central bank has previously said it would purchase a minimum of $20 million until at least Nov. 2.

Finance Minister Mauricio Cardenas, who is also president of the central bank’s board, told reporters after the meeting that the Treasury will “reinforce” the central bank’s intervention with dollar purchases of its own.

Oil Royalties

The government’s Petroleum Stability Fund, where some of the country’s oil royalties are invested, will continue to buy dollars, Cardenas said. The fund will end the year with about $1 billion in dollar holdings, from about $500 million now, he said.

“This is a clear signal for the market of our readiness to control the peso’s appreciation,” Cardenas said.

The yield on the government’s 10 percent peso-denominated bonds due in July 2024 rose one basis point, or 0.01 percentage point, to 6.35 percent, according to the central bank. Yesterday it fell to 6.34 percent, the lowest closing level since the debt was first sold in 2009.

Banco de la Republica lowered the target lending rate in August for a second straight month, reducing it by a quarter-percentage point to 4.75 percent.

Santana forecasts policy makers will lower the key rate to 4.5 percent by year-end.

“The economy is sending a lot of signals that it’s slowing,” said Santana. “The central bank will need to do more to address that.”

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