Colombia Boosts Pace of Dollar Purchases to Curb Peso Rally

Colombia’s central bank is stepping up its pace of dollar purchases to curb a rally in the local currency that pushed it to a five-month high.

The bank bought $19 million for a second consecutive day, up from an average of $10.5 million from April 1 to April 16. Finance Minister Mauricio Cardenas said the increase of about 80 percent is a response to the peso’s recent strength. The peso plunged 0.8 percent to 1,933.76 per dollar at the close of trading in Bogota, the worst performance among 24 emerging market currencies tracked by Bloomberg.

“As the peso has strengthened, we’ve taken the decision to accelerate the pace of buying within the framework that we’d already established,” Cardenas told reporters yesterday in Bogota. “This will allow us to counteract the trend of the dollar in recent days.”

The peso has rallied since JPMorgan Chase & Co. said March 19 that it could more than double the weighting of the nation’s local-currency bonds in two of its indexes, and as signs of faster growth led traders to step up bets on interest rate increases. The peso has strengthened 1.9 percent this month, the biggest gain after the South Korean won among emerging market currencies. It rose to 1,917.54 on April 10, its highest since Nov. 15.

The central bank’s policy committee pledged at its March meeting to buy as much as $1 billion from April to June. This ceiling hasn’t changed, Cardenas said.

‘Slow Pace’

“We were buying at a very slow pace,” Cardenas said. “We’re going to accelerate the pace to have more impact on the exchange rate. We made little use of the limit.”

The Colombian peso will continue to gain against regional peers including the Chilean and Mexican currencies, RBS Securities Inc. strategist Flavia Cattan-Naslausky wrote in a research report. Banco de la Republica can’t do much to reverse the peso’s appreciation amid relatively low inflation and high economic growth rates, she wrote.

“No surprise that they would increase the average daily purchases early this quarter given the positive impact on flows” following JPMorgan’s announcement, Cattan-Naslausky wrote. The central bank “can only try to mitigate currency volatility while increasing international reserves.”

All Weapons

Last year, Cardenas repeatedly described the peso’s strength as “the mother of all problems” for exporters, while President Juan Manuel Santos said Colombia should use “all the weapons in its arsenal” to curb its strength. The currency then fell to its weakest level since 2009 in February, as the Federal Reserve curbs asset purchases that have fueled demand for higher-yielding securities in emerging markets.

Industrial output, retail sales and unemployment data published over the last month by the national statistics agency all beat expectations, while annual inflation accelerated to 2.51 percent in March, its fastest pace in 16 months.

Colombia will hold its benchmark interest rate at 3.25 percent at its April 25 policy meeting, and raise it to 3.5 percent in June, according to the central bank’s most recent survey of economists.

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