Colombian Peso Declines to Six-Month Low on Oil Revenue Concern

Colombia’s currency fell to a six-month low on concern declining oil prices will reduce funds entering the South American country and as policy makers decide this week whether to extend dollar purchases.

The peso slipped 0.1 percent to 1,997.1 per dollar at the close in Bogota, its weakest since March 19. It has fallen 3.8 percent this month, the biggest drop among 24 emerging-market currencies after the Brazilian real and the South African rand.

“Fundamentals are for a weaker peso as we see less export revenue,” Daniel Escobar, the head analyst at Global Securities brokerage in Bogota, said in a phone interview. Crude oil, which has fallen 7.1 percent this year, accounts for more than 50 percent of Colombia’s exports.

President Juan Manuel Santos said yesterday in an interview on Bloomberg Radio that the peso needs to weaken more to get to a level at which he feels “absolutely comfortable.” His comments came as Colombia’s central bank policy makers prepare to meet Sept. 26 and decide if they will maintain dollar buying after third-quarter purchases of as much as $2 billion end.

Finance Minister Mauricio Cardenas, who is also president of the central bank’s board, said in an interview last week that the currency is approaching equilibrium and he would favor paring dollar purchases used to accumulate reserves if the peso’s weakness is sustained for a “prolonged period of time.”

‘Door Open’

Escobar said Banco de la Republica will probably announce an extension of its dollar purchase program “to leave a door open” in case the local currency strengthens. He forecasts policy makers will cut the maximum amount the bank would buy in the fourth quarter by half to $1 billion, matching the second-quarter program.

Alejandro Reyes, the head analyst at the Ultrabursatiles brokerage, said by phone from Bogota that the peso will probably end 2014 at about 2,000 per dollar. He said it should stay at that level as speculation that the U.S. Federal Reserve will raise interest rates reduces demand for emerging-market assets and as foreign companies repatriate revenue to avoid paying a net wealth tax Colombia is planning to extend.

Colombia is seeking to impose a 2.25 percent annual tax on wealth of more than 8 billion pesos ($4 million), with holders of smaller amounts paying lower rates. The tax legislation requires congressional approval.

This week, the central bank will leave the target lending rate at 4.5 percent, according to 25 of 30 economists surveyed by Bloomberg. Five of them expect an increase of 0.25 percentage point to 4.75 percent.

The price on benchmark peso bonds due in July 2024 rose 0.09 centavo to 124 centavos per peso, according to data from the central bank. Yields on the securities fell one basis point, or 0.01 percentage point, to 6.60 percent.

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