Colombia Yields Sink on Central Bank Board Changes; Peso Drops

Colombian bond yields fell to a record after President Jose Manuel Santos named the deputy finance minister to one of two vacant central bank board posts, bolstering speculation the bank will extend interest-rate cuts.

Yields on the government’s benchmark peso-denominated bonds due in 2024 dropped three basis points, or 0.03 percentage point, to 4.99 percent at the close of trading in Bogota, the lowest level since the bonds were issued in 2009.

Santos said in a message on his Twitter account today that he named Deputy Finance Minister Ana Fernanda Maiguashca and Adolfo Meisel, who heads the central bank’s branch in Cartagena, to the seven-member board that sets interest rates. Maiguashca said in a Feb. 12 interview that the central bank should pursue a range of goals instead of focusing exclusively on inflation.

“We can expect her to start with a dovish stance,” said Alejandro Reyes, the head analyst at Ultrabursatiles SA brokerage, who formerly monitored inflation at the central bank. “I see Meisel leaning more toward the hawkish side. What the market is seeing is that under this new board it’s easier for the bank to decide on a rate cut.”

The new board members will begin voting at the bank’s March policy meeting, sitting out tomorrow’s vote. The remaining five board members will reduce the benchmark lending rate by 0.25 percentage point to 3.75 percent, according to a majority of economists surveyed by Bloomberg. Traders project a rate cut tomorrow and another one later this year, according to Reyes.

Departing Members

Maiguashca and Meisel replace Fernando Tenjo and Juan Jose Echavarria, who said in a January interview that he was close to the center of opinion at the central bank, voting with Tenjo on some occasions to contain inflation.

Banco de la Republica has lowered the overnight lending rate 1.25 percentage points since June to 4 percent as economic growth waned and consumer prices rose at the slowest pace in almost three years.

The peso weakened 0.4 percent to 1,799.20 per U.S. dollar, extending its drop this year to 1.8 percent as the government and central bank announced increased dollar purchases to stem a rally that sent the peso to a 17-month intraday high on Jan. 2.

Lower foreign direct investment in Colombia is reducing pressure on the peso to strengthen, according to Camilo Perez, the head analyst at Banco de Bogota SA, the country’s second-biggest bank.

“Inflows have been less than people were anticipating,” Perez said.

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