Colombia’s Currency Advances Most on Week Among Emerging Markets

Colombia’s peso posted the biggest gain this week among emerging markets on rising inflows as policy makers increase interest rates and growth in the Andean economy accelerates.

The peso surged 1.8 percent this week to 1,846.50 per dollar, the best performance among 24 emerging market currencies tracked by Bloomberg. The currency fell 0.1 percent at the close, before Colombia’s World Cup quarterfinal match against Brazil.

Growth in Colombia accelerated to 6.4 percent in the first quarter, the fastest pace among major Latin American countries. To keep inflation in check, the central bank has raised borrowing costs 0.75 percentage point this year to 4 percent, while Mexico and Chile cut rates. Investors who buy riskier assets with money lent from nations with lower borrowing costs, known as the carry trade, have reaped a 6.5 percent gain in the past three months in Colombia, the biggest return among global markets.

“Investors are looking for carry trade and strong growth, and Colombia offers both,” Francisco Chaves, head analyst at Corredores Asociados brokerage in Bogota, said by phone. “Colombia is receiving strong portfolio investment flows.”

The central bank said June 20 it will buy as much as $2 billion in the third quarter to build international reserves, double the second-quarter pace of up to $1 billion. The Treasury in May also started buying dollars in the spot market, purchasing $148.5 million that month, according to the most recent figures on the Finance Ministry’s website.

‘Desirable’ Rate

Finance Minister Mauricio Cardenas said yesterday that an exchange rate at 1,950 is “desirable” and that, in a bid to weaken the peso, the Treasury is buying dollars at the same pace as the central bank.

Banco de la Republica bought $30.5 million yesterday after purchasing $31.8 million the previous day, according to data on the central bank’s website.

Because of the U.S. holiday, the Andean nation’s currency trades in the next-day market, in which payment and delivery are made the following trading day.

Colombian President Juan Manuel Santos, who traveled to Fortaleza for the match, decreed this afternoon a “civic day,” allowing public employees to watch the game.

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