Colombian Peso Falls on Dollar Purchase Plan, Reduced Issuance

Colombia’s peso fell the most in almost two weeks as the government scaled back plans for foreign debt sales and said it will buy $1 billion as part of its bid to ease gains in the local currency.

The peso weakened 0.3 percent to 1,783.20 per U.S. dollar at the close of trading in Bogota. The currency has dropped 0.9 percent this year as the government and central bank announced increased dollar purchases to stem a rally that sent the peso to a 17-month high on Jan. 2.

Colombia will sell $600 million in foreign bonds in the remainder of this year after issuing $1 billion of notes last month, Finance Minister Mauricio Cardenas told reporters in Bogota yesterday. The total is down 38 percent from the $2.6 billion the government had said it would issue.

“There’s an evident reaction in the market after the government’s announcements,” said Diego Usme, an analyst at Ultrabursatiles SA brokerage in Bogota.

The Finance Ministry also said yesterday its 2013 financing needs were reduced by 1.8 trillion pesos ($1 billion) after a Feb. 8 domestic debt exchange with public entities. The government will buy that amount in dollars in the currency market to pay for interest and principal on foreign bonds coming due this year, Cardenas said yesterday.

The dollar purchases add to Banco de la Republica’s Jan. 28 announcement that it will buy at least $30 million a day, bringing purchases in the foreign-exchange market to $3 billion between February and May. A stronger peso curbs exporters’ profit margins.

‘Big Aspiration’

Colombia’s “big aspiration” is a weaker currency to help its exporters, Finance Minister Mauricio Cardenas said Feb. 12. The currency should weaken to its “equilibrium” level of 1,950, he said.

While the government’s announcement yesterday is leading to declines in the peso, the move won’t be enough to weaken the peso to 1,950, according to Usme.

“Foreign direct investment flows will continue to pressure gains on the peso,” Usme said. “Today’s reaction is transitory.”

Adding to the peso’s losses today was a report showing Europe’s recession deepened, which spurred demand for the dollar as a refuge, Usme said.

The yield on Colombia’s peso-denominated bonds due in 2024 fell three basis points, or 0.03 percentage point, to 5.04 percent, according to the central bank. The price rose 0.295 centavo to 142.274 centavos per peso.

Before it's here, it's on the Bloomberg Terminal.