Colombian Bonds Rally on Surprise Drop in CPI; Peso Advances

Colombia’s peso bonds rose, pushing yields down the most in about two months, after a surprise drop in consumer prices in October fueled speculation that the central bank has room to cut borrowing costs further.

Yields on securities maturing in October 2015 fell 13 basis points, or 0.13 percentage point, to 4.60 percent at the close in Bogota, according to data from the central bank. The price rose 0.247 centavo to 106.278 centavos per peso.

Consumer prices fell 0.26 percent in October, led by a 1 percent decline in food prices, the national statistics agency said in a report yesterday after the close of markets. The median forecast of economists surveyed by Bloomberg was for a 0.13 percent increase. Annual inflation slowed to 1.84 percent, the lowest rate since February.

“The surprise was huge so you obviously have a clear reaction in the market,” Camilo Perez, the head analyst at Banco de Bogota SA, said in a telephone interview. “Some are starting to see the possibility of another rate cut.” The bank joined Credicorp Capital in predicting a decline in consumer prices while 26 other firms forecast an increase.

The central bank lowered the overnight lending rate from July 2012 through March to 3.25 percent from 5.25 percent to push inflation back up to the mid-point 3 percent target.

As economic growth accelerates, Perez forecasts policy makers will leave borrowing costs unchanged until March, when he expects a rate increase.

The peso climbed 0.1 percent to 1,917.60 per dollar today after four days of declines. It has fallen 1.4 percent in November.