Colombia Peso Falls on Speculation Uribe to Step Up Intervention

Colombia’s peso posted its longest streak of losses since November as speculation mounted that the central bank will increase dollar purchases in the foreign-exchange market to stem the currency’s gains.

The peso dropped for a fourth day, depreciating 0.2 percent to 1,811.72 per U.S. dollar at the close of trading in Bogota. It gained 9.7 percent in 2012 and touched a 17-month high on Jan. 2, prompting policy makers to increase dollar purchases in the foreign-exchange market. The currency has since weakened 2.7 percent.

Policy makers may increase dollar purchases as part of an effort to weaken the peso and help exporters, central bank Governor Jose Dario Uribe said in a March 16 interview in Panama City. President Juan Manuel Santos asked policy makers on March 14 to find new ways to ease the currency’s rally.

“External markets have been weighing down on the peso,” John Jairo Ramirez, a fixed-income analyst at brokerage Bolsa y Renta SA, said in a telephone interview from Medellin. “The central bank might also announce increased dollar purchases or at least an extension to its program” at its March 22 policy meeting, he said.

Banco de la Republica will buy about $3.5 billion in the foreign-exchange market from Jan. 1 through May 31 after purchasing more than $4.8 billion last year, Uribe said.

The peso also fell as emerging-market assets retreated after Cyprus’s parliament rejected an unprecedented levy on bank deposits, dealing a blow to European plans to force depositors to shoulder part of the country’s rescue in a standoff that risks renewed tumult in the euro area.

Interest-Rate Outlook

Yields on Colombia’s peso bonds due in May 2014, the benchmark for securities with shorter maturities, rose three basis points, or 0.03 percentage point, to 3.82 percent.

Banco de la Republica will lower the overnight lending rate by a quarter-percentage point to 3.5 percent on March 22, according to the majority of analysts surveyed by Bloomberg. Policy makers have cut benchmark borrowing costs 1.5 percentage points since July as growth cooled and inflation slowed below their target.

With annual inflation at 1.83 percent, the lowest level since the 1950s, Colombia has room to keep cutting interest rates, Finance Minister Mauricio Cardenas, who is also president of the central bank’s board, told reporters March 15.

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