Colombia’s peso plunged to a 16-month low on speculation the central bank will extend its dollar purchase program that ends today.
The peso weakened 0.9 percent to 1,907.70 per U.S. dollar at 10:05 a.m. in Bogota. Earlier it dropped to 1,919.61, the lowest since Jan. 3, 2012.
The Colombian government and central bank this year have increased dollar purchases to stem a rally that sent the currency to a 17-month intraday high on Jan. 2. Bonds and currencies have tumbled around the world this month on speculation a pickup in the world’s biggest economy will prompt the Federal Reserve to scale back monetary stimulus. The Colombian peso has declined 4.4 percent in May, the biggest drop since September 2011.
“The central bank will probably extend its dollar purchases through September,” said Brian Lesmes, an analyst at Bancolombia SA, the nation’s biggest bank, said in a phone interview from Bogota. He predicts Banco de la Republica will maintain the current pace of buying at least $30 million a day.
The central bank will leave the overnight lending rate unchanged at 3.25 percent in today’s policy meeting, according to all 31 economists in a Bloomberg survey. Finance Minister Mauricio Cardenas, who is also president of the bank’s board, said May 21 he will recommend that Banco de la Republica extend purchases through December, buying $9 billion this year.
“Offshore investors are buying dollars” and getting out of Colombia, said Lesmes. “You have a convergence of factors that point to a trend for a weaker peso.” Foreign direct investment is expanding at a slower pace, and a decline in oil prices is reducing inflows into Colombia, Lesmes said.
The yield on the nation’s benchmark peso bonds due 2024 fell eight basis points, or 0.08 percentage point, to 5.69 percent. It has climbed 82 basis points in the past month, the biggest monthly increase since the securities were sold in 2009.