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Colombia Peso Posts World-Beating Weekly Rally on JPMorgan Shift

Colombia’s peso posted the biggest weekly gain among all of the world’s currencies on speculation inflows will rise after JPMorgan Chase & Co. said it planned to raise the country’s weighting on two of its indexes.

The peso appreciated 2.4 percent to 1,994.51 per U.S. dollar this week, the most since June 2012. The currency fell 0.1 percent at the close of trading in Bogota today after the central bank held the target lending rate at 3.25 percent.

JPMorgan said March 19 that it will probably more than double the weighting of Colombia’s peso bonds in its GBI-EM Global Diversified Index to 8.05 percent from 3.24 percent starting May 30, citing the government’s effort to increase access to foreigners. The index is used as a benchmark by firms that manage around $195.7 billion, JPMorgan strategists including Holly Huffman wrote in a separate report that day.

“The possible amount of portfolio inflows that could arrive to Colombia is significant,” Credit Suisse analyst Juan Lorenzo Maldonado wrote today in a research report to clients.

Public Credit Director Michel Janna said in an interview last week that the nation may reduce a tax on foreigners’ bond profits to less than 5 percent or eliminate it entirely. Colombia chopped foreigners’ taxes to 14 percent from 33 percent in January 2013 to spur demand and cut borrowing costs.

JPMorgan said that it will add Colombian peso bonds, or TES, due in June 2016, November 2018, May 2022, July 2024 and April 2028 to its index in a “phased approach” starting May 30 and ending Sept. 30. The bank will also include the securities in its GBI-EM Global index, probably boosting the weighting to 5.6 percent from 1.81 percent.

Dollar Purchases

Colombia’s central bank announced today it will extend its dollar purchase program to as much as $1 billion from April to June. Policy makers had said the bank will buy as much as $1 billion in the first quarter. It bought $11.5 million today and has purchased $542.5 million this year.

Policy makers left the overnight lending rate unchanged today at 3.25 percent for a 12th straight month, as expected by all 30 economists surveyed by Bloomberg. The decision was unanimous, central bank Governor Jose Dario Uribe told reporters in Bogota after the meeting.

The weighting increase “can compensate to some degree the impact that the adjustment in global liquidity has on the exchange rate and interest rates in the Colombian market,” the central bank said in the statement.

The price of benchmark peso bonds maturing in 2024 climbed 0.545 centavo to 124.375 centavos per peso today, according to data from the central bank. Yields fell six basis points, or 0.06 percentage point, to 6.66 percent. They were down 46 basis points for the week.

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