Colombia Peso Gains Most in Three Weeks; Bond Yields Rise

Colombia’s currency rose the most in three weeks amid speculation a tax cut will encourage foreign investors to buy local debt and as companies exchanged dollars for pesos to pay taxes.

The peso advanced 0.5 percent to 1,765.66 per U.S. dollar at the close of trading in Bogota, the biggest jump since Dec. 28. It has gained 1.7 percent in the past month. The currency reached an intraday high of 1,750.50 on Jan. 2, the strongest since July 2011.

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, leading to speculation foreign investment in the market will rise.

“The trend for the first half of the year is for a stronger peso,” Felipe Campos, the head analyst at Alianza Valores brokerage, said in a phone interview from Bogota. “You have companies bringing in dollars to pay taxes in February, and we’ll also see more and more foreigners” coming into the local debt market, he said.

Finance Minister Mauricio Cardenas told reporters today that he is concerned about the peso’s rally and the government will use “all its ammunition” to stem gains, while ruling out capital controls which he said aren’t effective enough. In a Jan. 15 interview, Cardenas said he would like the central bank to step up dollar purchases after bought a record $4.8 billion in the currency market last year.

Central Bank Governor Jose Dario Uribe said on RCN Radio Jan. 15 that policy makers believe Colombia would benefit from a weaker currency and reiterated that the bank will buy a minimum of $20 million a day through at least the first quarter to curb its advance.

The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 rose two basis points, or 0.02 percentage point, to 5.37 percent, according to the central bank. The bond’s price dropped 0.177 centavo to 138.934 centavos per peso.