Colombia’s Peso Posts Weekly Drop on Speculation for Rate Cut

Colombia’s peso posted its biggest weekly drop since October as central bankers increased dollar purchases in the foreign-exchange market and as speculation mounted that they will cut interest rates.

The peso slid 0.7 percent in the past five days, the biggest weekly drop since the period ended Oct. 26. It rose 0.2 percent at the close of trading in Bogota today.

Banco de la Republica said Jan. 28 that it will boost dollar purchases to stem a rally that sent the peso to a 17-month high on Jan. 2, curbing exporters’ profit margins. A Feb. 5 report showing inflation slowed more than economists expected is fueling speculation that the central bank will lower borrowing costs in the Feb. 22 meeting, reducing the appeal of local fixed-income assets and helping curb foreign investment in the market.

“The inflation report couldn’t have come at a better time for the government,” Eduardo Bolanos, an analyst at Asesores en Valores brokerage in Bogota, said in a phone interview in Bogota. “It provides room for more rate cuts and also for more dollar purchases without the fear of stoking inflation.”

President Juan Manuel Santos said to coffee growers Feb. 6 that his government will use “all the weapons in its arsenal” to prevent the currency’s appreciation from hurting the country’s farmers and manufacturers who complain the strong peso is making it difficult for them to compete.

The yield on government securities due in 2024 rose one basis point, or 0.01 percentage point, to 5.1 percent, according to the central bank. It fell to 5.09 percent yesterday, the lowest since the securities were first issued in 2009.

The central bank said Jan. 28 that it will buy at least $30 million a day, bringing purchases in the foreign-exchange market to $3 billion between February and May.

Annual inflation slowed to 2 percent in January, the lowest rate since April 2010, from 2.44 percent at the end of last year. Banco de la Republica, which has cut the benchmark lending rate by 1.25 percentage points since July to 4 percent, has an inflation of 3 percent plus or minus 1 percentage point.

Policy makers will lower the overnight lending rate 25 basis points in each of its meetings in February and March, Bolanos forecasts.

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