Santos Says Colombia Central Bank Should Stop Buying Dollars

Colombia’s central bank should stop its program of daily dollar purchases at the end of this month as the peso weakens toward a level the Andean nation “can live with,” President Juan Manuel Santos said.

“I don’t think they need to continue buying at the moment,” Santos said today in an interview from his office in Bogota. “If I were a member of the central bank I wouldn’t renew” the daily program of dollar purchases that ends this month.

The central bank in May extended its daily program of dollar purchases until the end of September in an effort to weaken the exchange rate that the government said was damaging exporters. Finance Minister Mauricio Cardenas has repeatedly said that the peso’s “equilibrium” level is 1,900 to 1,950 per U.S. dollar.

The peso erased earlier losses to strengthen 0.2 percent to 1919.86 per U.S. dollar today after Santos’ comments. The currency has weakened 8 percent this year.

“Between what we have right now and 2,000 or something, it’s something we can live with,” Santos said. “There’s no reason to continue buying, but that’s a decision the central bank has to take.”

Banco de la Republica has bought $5.8 billion in the spot market this year.

September Meeting

Santos’ comments mean that Cardenas, who as finance minister chairs the central bank’s policy committee, will argue against extending dollar purchases at the bank’s Sept. 27 policy meeting, said Andres Pardo, head analyst at Corporacion Financiera Colombiana, or Corficolombiana.

“The position of at least the minister will be to vote not to extend the dollar purchase program,” Pardo said in a phone interview from Bogota. “This raises the chance that they won’t extend it.”

An end to dollar purchases could cut yields on shorter maturity bonds since the central bank would need to issue fewer peso bonds, or TES, to absorb liquidity created by buying foreign reserves, Pardo said.

The yield on government peso bonds maturing in 2014 fell 0.2 percentage point this month to 3.71 percent.

Lower Rates

The Colombian economy will grow 4 percent or more in the second quarter from a year earlier, Santos said. The growth was led by 7 percent to 10 percent growth in agricultural production, a “very important” increase in public works spending, Santos said.

The second quarter also showed the country’s service sector “in good shape,” said Santos, who saw preliminary data on the second-quarter gross domestic product. The report is scheduled to be published by the national statistics agency on Sept. 19.

The president said the central bank has room to cut the benchmark interest rate this year to help fuel economic growth.

The central bank held its key rate at 3.25 percent for fifth straight month on Aug. 30, with a minority of policy makers arguing for a cut. Colombia cut its policy rate by two percentage points between July 2012 and March.

“I respect very much the independence of the central bank but, personally, I would not be unhappy with a cut in the interest rate,” he said. “In the near future, I think there’s room to cut interest rates.”

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