Colombia needs to do more to weaken the peso to its “equilibrium rate” of about 1,950 per dollar and should continue its purchases of the U.S. currency, Finance Minister Mauricio Cardenas said.
Cardenas, who chairs the central bank’s seven-member policy committee, said that he’ll argue for the bank to extend its dollar purchase program, even after the peso weakened to a 16-month closing low of 1865.75 per dollar yesterday.
“There’s been a lot of progress since we began our policies earlier this year,” Cardenas said yesterday in an interview in Cali, Colombia, on the sidelines of a Pacific Alliance summit. “We’ve done a lot, but we still have additional work to do.”
The government of President Juan Manuel Santos has repeatedly tried to weaken the peso, arguing that its strength is hurting Colombia’s industry and agriculture by making exports uncompetitive. Cardenas last month drew the Andean nation’s pension funds into his currency war by encouraging them to invest more outside Colombia.
Even after its recent decline, the peso has still strengthened 20 percent since the start of 2009, the biggest gain of 24 major emerging currencies tracked by Bloomberg after the Chilean peso. Since February, the central bank has bought at least $30 million a day.
The peso weakened 0.7 percent today, declining for a sixth straight session and by the most in three weeks, to a new 16-month closing low of 1,878.75 per dollar. The currency has dropped 5.9 percent this year.
Cardenas said Colombia may be able to withdraw the currency measures if the peso experiences a “sharp depreciation.” That could be caused by the U.S. Federal Reserve pulling back its monetary stimulus, easing pressure on emerging market currencies to appreciate, he said.
“The program is contingent on developments, and those developments include of course the stance of monetary policy in the United States,” Cardenas said.
Cardenas may face opposition from other members of the central bank on May 31, the date of their next policy meeting, including co-director Adolfo Meisel, who said in an April 10 interview that central banks cannot control long-run currency trends that have “structural” causes.
To help weaken the currency, the government has also asked state-controlled oil company Ecopetrol S.A. to limit its issue of dollar-denominated debt, and asked a royalties fund known as Fonpet to buy $1 billion of assets outside Colombia, rather than bring the money back to the country.
Banco de la Republica has cut its policy rate 2 percentage points over the past year, to 3.25 percent, the lowest interest rate among major Latin American economies, as industrial output slumped and the annual inflation rate fell to a six-decade low.
The yield on the government’s peso bonds due 2024 rose one basis point, or 0.01 percentage point, today to 5.18 percent, its highest level in two months. Industrial production fell 11.5 percent in March from a year earlier, its fifth straight contraction.
At the summit that concluded yesterday, the Pacific Alliance nations of Mexico, Colombia, Chile and Peru agreed to eliminate 90 percent of tariffs between themselves.
Mexican President Enrique Pena Nieto said his government is working with the stock exchange, operated by Bolsa Mexicana de Valores SAB, to have the bourse join the Latin American Integrated Market, or MILA, that already includes the three other Alliance nations.
“There’s a dialogue with the Mexican stock exchange to meet the legal requirements as soon as possible to achieve this full integration,” Pena Nieto said at a news conference.