Colombia Bonds Rally on Slowest Inflation Since 1955; Peso Rises

Colombia’s peso bonds rose for a fifth day on speculation the central bank will lower borrowing costs further after Finance Minister Mauricio Cardenas said the slowest inflation since 1955 will allow policy makers to focus on supporting economic growth.

Yields on peso bonds maturing in 2024 decreased three basis points, or 0.03 percentage point, to 4.93 percent at the close of trading in Bogota, according to the central bank. That is the lowest level since the securities were issued in 2009. The price rose 0.362 centavo to 143.340 centavos per peso.

Colombia has entered a “sustainable low inflation phase,” which means policy makers can concentrate on spurring economic growth to its potential annual rate of 4.8 percent, Cardenas, who is also president of the central bank board, said yesterday in a phone interview. Annual inflation slowed to 1.83 percent in February, compared with the 1.89 percent median forecast of analysts surveyed by Bloomberg.

“You have low inflation and a policy maker signaling there is room for more cuts,” said Camilo Perez, the head analyst at Banco de Bogota SA, the country’s second-biggest bank. “Bonds are gaining on that combination.”

Colombia’s foreign-debt rating may be raised by Fitch Ratings as international reserves rise and debt levels drop. The outlook on the credit rating was changed to positive from stable, Fitch said in a statement today. Fitch’s rating is BBB-, the lowest investment-grade level. The announcement came after the close of the market.

‘Positive Impact’

The news should have a “positive impact” on the market tomorrow, pushing yields lower, said Daniel Lozano, the head analyst at Serfinco SA brokerage in Bogota.

Standard & Poor’s raised its outlook on Colombia’s BBB-rating to positive in August.

The central bank has lowered its policy rate six times beginning in July to 3.75 percent, the lowest level among major Latin American economies. Perez forecasts a cut of 25 basis points to 3.5 percent at the next rate-setting meeting scheduled for March 22.

February’s annual inflation was below the central bank’s 2 percent to 4 percent target and the slowest annual pace since 1955, when General Gustavo Rojas Pinilla ruled as dictator.

The peso appreciated 0.1 percent to 1,807.50 per U.S. dollar, paring its drop this year to 2.2 percent.

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