Colombia Bond Yields Fall for Seventh Week; Peso Little Changed

Colombian bond yields posted a seventh week of declines before the central bank lowered the target lending rate by a quarter-percentage point to 3.75 percent to boost the Andes region’s slowest-growing economy.

Yields on the government’s benchmark peso-denominated bonds due in 2024 dropped four basis points, or 0.04 percentage point, to a record low 4.97 percent since Feb. 15 in their longest stretch of weekly decreases in three years. The yields fell two basis points today while the price increased 0.21 centavo to 142.974 centavos per peso.

The yields fell on speculation two policy makers appointed by Colombia’s President Juan Manuel Santos will support cutting interest rates. Deputy Finance Minister Ana Fernanda Maiguashca and Adolfo Meisel, who heads the central bank’s branch in Cartagena, are joining the seven-person board that sets borrowing costs, Santos announced yesterday. The new members will begin voting at the bank’s March policy meeting.

“The market has interpreted the namings as a confirmation today’s cut won’t be the last,” John Jairo Ramirez, a fixed-income analyst at Bolsa y Renta SA brokerage, said in a phone interview from Medellin.

Maiguashca said in a Feb. 12 interview that the central bank should pursue a range of goals instead of focusing exclusively on inflation. Meisel said in an interview on Javeriana radio today that he is an “orthodox” economist who believes in markets and also in state intervention.

“Meisel is seen as dovish as he might be the government’s card to help contain the peso’s gains,” Ramirez said. “Coming from the government, Maiguashca might start out dovish, but I think in the longer run she’ll take a more hawkish stance given her background in financial regulation.”

Unanimous Vote

Today’s rate decision was announced after the close of Colombia’s bond and currency markets. Central bank Governor Jose Dario Uribe told reporters the vote was unanimous.

Banco de la Republica has lowered the overnight lending rate by 1.50 percentage points since June as economic growth waned and consumer prices rose at the slowest pace in almost three years.

The currency dropped 0.7 percent this week and has declined 1.8 percent in 2013 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. The peso closed little changed at 1,798.99 per U.S. dollar today.

Colombia’s interest rate has an “important” effect on the exchange rate, Finance Minister Mauricio Cardenas, who is also president of the central bank’s board, told reporters after the meeting. The peso will keep weakening, he said.

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