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Colombia Swap Yields Rise Most in Eight Months on Rate Hold

Yields on Colombia’s interest-rate swaps rose the most in eight months as the central bank left borrowing costs unchanged, citing higher-than-forecast second-quarter growth.

The yield on three-month interest-rate swaps rose 11 basis points, or 0.11 percentage point, to 4.56 percent, according to data compiled by Bloomberg. That’s the biggest increase since Jan. 31.

Colombia’s central bank kept the overnight lending rate at 4.75 percent, bank chief Jose Dario Uribe said Sept. 28 after the close of market. While 12 analysts surveyed by Bloomberg expected a 25-basis-point cut, 22 had predicted no change.

“The central bank has entered a wait-and-see mode,” said Eduardo Bolanos, an analyst at Asesores en Valores brokerage in Bogota. “The market is starting to price in the end of the monetary expansion cycle, at least until year-end.”

The peso erased earlier gains, closing little changed at 1,800.65 per U.S. dollar. It has jumped 7.7 percent this year.

The central bank also 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, Uribe said after the monetary policy meeting. 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.

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.

The peso usually weakens in the last two months of the year as foreign companies in Colombia repatriate revenue, said Bolanos. He forecasts the local currency will weaken to 1,850 by the end of 2012.

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