Colombian Peso Posts Weekly Drop on Intervention Speculation

Colombia peso posted its biggest weekly drop since October on speculation the central bank will increase dollar purchases to ease gains in the local currency.

The peso dropped 0.6 percent this week, the biggest decline since the period ended Oct. 26. It was little changed at 1,779.90 per U.S. dollar at the close of trading in Bogota.

The Colombian currency jumped to a 17-month high on Jan. 2, sparking comments from policy makers including Finance Minister Mauricio Cardenas who said Jan. 17 that Colombia will use “all its ammunition” to curb gains that are making the nation’s coffee, flower and banana exporters less competitive. Central Bank Governor Jose Dario Uribe reiterated on RCN Radio on Jan. 15 that the bank will buy a minimum of $20 million a day through at least the first quarter to curb the advance.

“The government has made it clear if feels uncomfortable with the strong peso,” Daniel Escobar, the head analyst at Global Securities in Bogota, said by telephone.

He forecasts the central bank will announce an increase in daily purchases to an average $40 million a day from about $28 million, when policy makers next meet on Jan. 28 for the monthly monetary policy meeting.

Banco de la Republica will lower its overnight lending rate by a quarter-percentage point next week to 4 percent, according to 31 of 33 economists surveyed by Bloomberg. The other two expect policy makers to keep borrowing costs unchanged.

Colombia will lower the benchmark rate to 3.75 percent by February, Morgan Stanley economist Daniel Volberg wrote in a report today. The central bank “may be ready to also cut rates as an antidote to currency strength,” he wrote.

Bond Yields

Yields on local bonds due July 2024 have tumbled 43 basis points, or 0.43 percentage point, in January in what would be their eighth monthly drop on speculation for lower rates and bets of increased demand from overseas investors after the government lowered a bond tax.

The government cut taxes on overseas investors’ earnings from domestic securities to 14 percent from 33 percent as of Jan. 1 to help boost demand and reduce borrowing costs.

The yield on the 10 percent peso-denominated debt due in 2024 fell three basis points today to 5.23 percent, the lowest close since the securities were first issued in 2009, according to the central bank.

Colombia will attract a potential $6 billion from abroad into the domestic debt market following the change in the levy, Morgan Stanley said in a separate report. The yield on the 2024 bond will fall to 4.6 percent at the end of the first quarter, according to the report.

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