Colombia Peso Leads Latin America Gains as Barclays Sees Rebound

  • Policy makers likely to raise rate this month, bank says
  • Government's sale of Isagen will also drive gains: analysts

Colombia’s peso posted the biggest gain in Latin America after Barclays Plc said it expects the currency to outperform peers as the Andean nation begins raising interest rates this month.

The currency rose 0.6 percent to 3,023.45 per dollar as of 12:38 p.m. in New York, trimming its decline over the past year to 34 percent. The peso is among the worst performing emerging-market currencies in that span, reaching a record low Aug. 26, as prices tumbled for oil, Colombia’s biggest export.

Some central bankers voted for an interest rate increase at the past two board meetings to curb the fastest inflation in more than six years, even as economic growth slowed. Policy makers will likely raise borrowing costs by a quarter percentage point to 4.75 percent at their Sept. 25 meeting, Barclays analysts including Alejandro Arreaza and Andres Jaime Martinez said in a report Monday. The bank has left its policy rate unchanged at 4.5 percent for the past year.

"The balance of risks between slower growth and higher inflation" points toward the latter, Arreaza and Martinez wrote. They expect the key rate to end this year at 5 percent and at 5.50 percent in 2016.

The possible sale of the government’s stake in hydropower producer Isagen SA should also fuel gains in the Colombian tender in the coming months, according to Barclays.

Inflation accelerated to 4.74 percent in August from a year ago, the fastest pace since 2009, as the weaker peso triggered a surge in the price of imported goods. Central bankers target inflation of 3 percent, plus or minus one percentage point.

Barclays now sees inflation ending this year at 5 percent, up from a previous forecast of 3.9 percent.