Colombian Swap Rates Fall as Central Bank Signals Possible Cut

Colombian swap rates fell the most in two weeks as policy makers signaled that they could cut borrowing costs after holding them steady since March.

Three-month swap rates fell three basis points, or 0.03 percentage point, to 3.14 percent at 2:57 p.m. in Bogota. The peso rose 0.4 percent to 1,932.95 per U.S. dollar at the close of trading.

Banco de la Republica, led by Governor Jose Dario Uribe, kept its overnight lending rate at 3.25 percent, as forecast by all 29 analysts surveyed by Bloomberg. The decision wasn’t unanimous as some co-directors voted for a cut, Uribe told reporters after the monetary policy meeting. Policy makers aren’t ruling out the possibility of a reduction, according to a statement they released with the rate decision.

“The central bank is sending a very clear signal,” Mario Castro, a strategist at Nomura Holdings Inc., said in a telephone interview from New York. “It doesn’t look like they are very convinced growth is recovering in the second half as expected.”

Policy makers last month cut the forecast for economic growth this year to 4 percent, from 4.3 percent. Downside risk to growth forecasts have risen recently, the central bank said the statement.

The lending rate has only been lower once, when it was held at 3 percent between April 2010 and February 2011. Castro predicts a quarter percentage-point cut as early as next month.

Dollar Purchases

Colombia’s peso posted a third weekly drop, weakening 0.8 percent, as policy makers increase dollar purchases while speculation mounts that the Federal Reserve will reduce U.S. stimulus that has buoyed demand for emerging-market assets.

The peso has fallen 2 percent in the past month, compared with a 4.4 percent drop in Brazil’s real and a 0.9 percent decline in Peru’s sol. While Brazil and Peru are acting to prop up their currencies, Colombia has increased the amount of dollars it buys to weaken the peso in the past week, seeking to reach its target of purchasing at least $2.5 billion from June to September, said Banco de Bogota SA’s Camilo Perez.

“It does stand out that Colombia is the only country in the region that is taking action” to weaken its currency, Perez, who is head analyst at the nation’s second-biggest bank, said in a telephone interview from Bogota. “Lately the central bank has accelerated its purchases, and it seems to be a question of credibility, of reaching the target they had announced.”

Fed Stimulus

Banco de la Republica purchased an average $38 million daily this week, up from an average of $29.4 million in the previous three weeks of August. It bought $39.9 million today. Brazil on Aug. 22 announced a $60 billion intervention program in the currency market, a day after Peru sold a record $600 million to prop up the sol.

Colombia’s peso and other emerging-market currencies have weakened since May after Fed Chairman Ben S. Bernanke signaled the possibility of paring back monthly bond purchases that have suppressed interest rates in developed markets and sent investors hunting for higher yields in riskier assets.

The yield on Colombia’s benchmark peso bonds due July 2024 fell four basis points to 7.04 percent, according to the stock exchange.

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