Colombia Peso Bond Yields Fall on Inflation; Currency Rises

Colombia’s peso bond yields fell to a three-month low as lower-than-forecast inflation fueled speculation that the central bank will reduce borrowing costs as soon as this month.

The mid yield on the government’s peso-denominated debt due in May 2014 dropped five basis points, or 0.05 percentage point, to 3.76 percent at the close in Bogota, the lowest level since May 27, according to the stock exchange. The price rose 0.02 centavo to 103.606 centavos per peso.

Consumer prices rose 2.27 percent in the 12 months through August, less than the 2.34 percent median estimate of 23 economists surveyed by Bloomberg, a government report showed yesterday. Analysts projected accelerating inflation after protests by farmers and truckers in August pushed food prices higher.

“Inflation came in pretty low,” Camilo Perez, head analyst at Banco de Bogota SA, the nation’s second-biggest bank, said in a phone interview. “It increases the chances for a rate cut soon.”

Banco de la Republica, led by Governor Jose Dario Uribe, kept its overnight lending rate at 3.25 percent on Aug. 30. Policy makers said in a statement released with the decision that they aren’t ruling out the possibility of a reduction. The next meeting is Sept. 27. The central bank targets inflation of 3 percent, plus or minus one percentage point.

The peso rose 0.3 percent to 1,950.23 per U.S. dollar today and posted a fourth straight weekly drop, depreciating 0.9 percent in the past five days.

Colombia’s Finance Minister Mauricio Cardenas, who has repeatedly said the peso’s “equilibrium” level is 1,900 to 1,950, told reporters today that the “exchange rate has an optimum level, after which it can generate problems.”

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