Colombia’s peso fell, extending its first weekly drop since November, on speculation policy makers will lower borrowing costs further to boost a slowing economy.
Central bank minutes released today indicated the board was split three ways when it surprised analysts by lowering the benchmark interest rate by 25 basis points, or 0.25 percentage point, on Dec. 21 to 4.25 percent. More than one policy maker voted for a 50 basis point cut and one opted for no change.
“The generally dovish stance should signify at least one additional rate cut to come,” Bret Rosen, a Latin America strategist at Standard Chartered Bank, wrote in a note to clients today. “With the currency well below the 1,800 level, another rate cut could potentially take a little appreciation pressure off of the peso as well.”
The peso depreciated 0.5 percent to 1,771 per U.S. dollar at the close in Bogota, extending its drop since Dec. 28 to 0.6 percent. That is the first weekly decline since the period ended Nov. 16. The peso touched 1,750.50 on Jan. 2, the strongest intraday level since July 2011.
The Colombian currency weakened earlier today on speculation policy makers will take further measures to ease its gains after central bank Governor Jose Dario Uribe said Jan. 2 on RCN Radio that the strong peso is a concern and reiterated Banco de la Republica will buy at least $20 million a day through at least the first quarter.
The central bank might increase daily dollar purchases or extend them should the peso continue its rally, said Camilo Perez, the head analyst at Banco de Bogota SA, the nation’s second-biggest bank.
“Given slowing growth, the central bank is more susceptible to intervene at these levels,” Perez said in a telephone interview.
The economy grew 2.1 percent in the third quarter from a year earlier, less than half the 4.9 percent rate in the prior three months, the government reported Dec. 20. That was weaker than all 28 forecasts compiled by Bloomberg.
The yield on the government’s 10 percent peso-denominated debt due in July 2024 rose two basis points to 5.68 percent, according to the central bank.