Colombian Peso Falls to Record Low as Bonds Drop on CPI Surprise

  • Inflation exceeds all forecasts for fourth straight month
  • Central bank forecast to raise interest rates on Dec. 18

The Colombian peso sank to a record low on a worsening rout in crude oil, while local bonds declined as above-forecast inflation spurred bets on higher borrowing costs.

The peso depreciated 2 percent to 3,264.87 per U.S. dollar at 9:49 a.m. in Bogota, the most in emerging markets, after earlier touching an unprecedented 3,271.71. The yield on government bonds due 2024 rose 0.1 percentage point to 8.29 percent, the highest since 2011.

Brent crude extended its drop to a six-year low after the Organization of Petroleum Exporting Countries effectively abandoned its strategy of limiting production to control prices at a meeting Friday in Vienna. Oil makes up about 40 percent of Colombia’s exports, and it’s plunge over the past year and a half has sent the country’s current account deficit toward the highest in two decades. The peso has weakened 29 percent over the last 12 months, the worst performance after the Brazilian real among emerging-market currencies tracked by Bloomberg.

“After the OPEC meeting on Friday, oil began to fall sharply again,” said Juan Pablo Espinosa, head analyst at Bancolombia SA, Colombia’s biggest bank. “Traditionally, the correlation of the oil price to the exchange rate has been very pronounced, and that becomes much more intense when we’re talking about a fall in oil prices.”

The currency’s slide has boosted import costs, contributing to a surge in consumer prices, which has repeatedly surprised analysts and policy makers. Annual inflation accelerated to 6.39 percent in November, the National Statistics Agency said Saturday, exceeding all estimates in a Bloomberg survey for a fourth straight month. The median forecast of 29 analysts was for November inflation of 6.28 percent.

Inflation has surged as the weaker peso boosts import prices, while a severe drought has led to higher food costs. The bank will raise its policy rate for a fourth straight month, to 5.75 percent, at its Dec. 18 meeting, according to analysts surveyed by Bloomberg. Colombia targets inflation of 3 percent, plus or minus one percentage point.

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