Colombia Swap Rates Fall After Central Bank Minutes; Peso Drops

Yields on Colombia’s interest-rate futures fell to a three-month low on speculation policy makers will cut borrowing costs as soon as this week after minutes from the November meeting signaled room for a “monetary boost.”

Three-month swap rates fell six basis points, or 0.06 percentage point, to 3.08 percent at 3:46 p.m. in Bogota, the lowest on a closing level since Sept. 16, according to data compiled by Bloomberg. Yields on peso bonds maturing in October 2015 dropped eight basis points to 4.48 percent, according to data from the central bank. The peso slid 0.1 percent to 1,934.03 per U.S. dollar at the close in Bogota, extending its decline this year to 8.6 percent.

Minutes published Dec. 13 after the close of trading show some members of the central bank’s seven-member policy committee argued that “there would be room for a monetary boost that is greater than the current one” if economic data support the view that inflation is slowing and economic growth is at or below expectations.

“The minutes have a dovish tone,” Mario Castro, a strategist at Nomura Holdings Inc. in New York, wrote in a research note to clients. “We are highly likely to see an additional rate cut in the coming months as conditions are set for a slower than initially expected rebound in inflation and inflation expectations.”

Annual inflation slowed to 1.76 percent last month, its lowest since the 1950s. The central bank’s target is 3 percent, plus or minus 1 percentage point. Colombia cut its policy rate seven times from July 2012 to March to 3.25 percent, the lowest in Latin America.

Rate Outlook

Banco de la Republica will probably leave the target lending rate unchanged Dec. 20, according to the median forecast of economists surveyed by Bloomberg.

Policy makers will leave the lending rate unchanged until 2015, Bank of America senior Andean economist Francisco Rodriguez wrote in an e-mailed report dated Dec. 13. “Strong” data released last week showing an increase in third-quarter civil works spending suggests that gross domestic product may have grown more than previously expected, he wrote.

The government last week released a report showing investment in civil works jumped 18 percent in the third quarter, the biggest increase since the second quarter of 2012. The statistics agency is scheduled to release its gross domestic product report for the three-month period on Dec. 19.

“The fact that a group of board members would be willing to advocate rate cuts under a specific set of conditions does not imply that that group would make a majority,” Rodriguez wrote.

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