Colombia Bond Yields Fall on Rate Cut View; Peso Little Changed

Colombia’s peso bond yields fell to a record on mounting speculation that policy makers will reduce interest rates this month to buoy growth in the Andean economy.

Yields on peso debt due May 2014, the benchmark for bonds with shorter maturities, fell one basis point to 3.83 percent at the close if trading in Bogota. The yields were at the lowest since the securities were issued in 2009.

Colombia’s economy has no inflationary pressure in the near future, as excess capacity helps keeps prices down, the central bank said March 8 in the minutes of its February meeting where policy makers reduced the overnight lending rate a quarter point to 3.75 percent. Banco de la Republica has cut its policy rate six times beginning in July to 3.75 percent, the lowest level among major Latin American economies.

“The minutes kept their dovish tone, with clear reference to low inflation and weak growth that support our expectations for another interest rate cut of 25 basis points in the next monetary policy meeting on March 22,” Felipe Hernandez, a Stamford, Connecticut-based economist at Royal Bank of Scotland Group Plc, wrote in a note to clients today.

Banco de la Republica also cited “paralysis” in the country’s coal industry and the risk of lower demand from Venezuela in its unanimous decision to cut the policy rate last month. Annual inflation decelerated in February to 1.83 percent, the slowest since 1955 and below the bank’s target range of 2 percent to 4 percent.

“Beyond March we think that the probability of further cuts are limited and will depend on incoming data,” Daniel Chodos, a strategist at Credit Suisse Group AG, wrote in a report today. He also forecasts a reduction of 25 basis points in the March meeting.

The peso was little changed at 1,802.05 per U.S. dollar. It’s down 2 percent this year.

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