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Colombia Would Be Relaxed With Extra 5% Peso Drop, Cardenas Says

Jan. 23 (Bloomberg) -- Colombia’s low inflation rate means the peso could weaken a further 5 percent without worrying the government, Finance Minister Mauricio Cardenas said.

The government is happy with the peso’s 11 percent drop over the last year, which brought relief to the Andean nation’s farmers and manufacturers, Cardenas said in an interview today. The peso is on a weakening trend and will probably decline to 2,000 per dollar within days, he added. The currency fell 0.4 percent to 1,997.05 per dollar today, its weakest level since 2010.

“We’re happy with the results of our policy last year, because it allowed us to escape from a difficult period of revaluation,” Cardenas said, speaking on the sidelines of the World Economic Forum in Davos. Colombia’s low inflation rate means that the government “would also be relaxed” with the peso at 2,100 per dollar, Cardenas said.

Last year, Cardenas repeatedly described the peso’s strength as “the mother of all problems” for Colombia’s exporters, as the central bank bought $6.8 billion dollars to try to curb its strength. The bank’s policy committee, which Cardenas chairs, extended its daily dollar purchase program at its December board meeting, pledging to buy as much as $1 billion in the first quarter in daily auctions.

Even after its recent drop, the peso is up 38 percent over the last decade, the biggest gain among 24 major emerging market currencies tracked by Bloomberg, as oil and mining output soared on the back of record levels of foreign investment. The Peruvian sol rose 24 percent over the same period, while the Chilean peso gained 4 percent.

Consumer prices rose 1.94 percent last year, the lowest rate in the region, and below the lower end of the central bank’s target range of 2 percent to 4 percent.

The bank will hold its policy rate at 3.25 percent for a 10th straight month at its Jan. 31 board meeting, according to all 7 analysts surveyed by Bloomberg, after cutting interest rates by two percentage points between July 2012 and March 2013. A further rate cut is unlikely, Cardenas said.

To contact the reporter on this story: Juan Pablo Spinetto in Davos, Switzerland at jspinetto@bloomberg.net

To contact the editor responsible for this story: Matthew Bristow at mbristow5@bloomberg.net

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