Colombian Peso Strengthens Past 3,000; Inflation Seen Peaking

  • Currency gains most in emerging markets to two-week high
  • CPI rose to 8.97% in June, faster than analysts estimated

Colombia’s peso gained the most in emerging markets on Monday as oil prices rose.

The currency jumped 1.7 percent to 2,988.38 per dollar at 10:39 a.m. in Bogota, strengthening past the 3,000 level for the first time in two weeks. The peso has gained 6 percent this year after losing 25 percent in 2015 and 19 percent the year before.

Colombia has joined a rally in emerging-market assets to the highest level in more than a year as prospects for central bank stimulus and a better-than-expected U.S. jobs report fueled demand for higher-yielding assets. Oil gained Monday after OPEC’s president said the group will hold informal talks in Algiers next month and predicted the current bear market would be short lived.

“The search for yield is leading to an artificially positive sentiment toward emerging markets," Camilo Perez, the head analyst at Banco de Bogota, said. Higher commodity prices including oil are also fueling gains in the peso, he said.

Colombia reported late Friday that inflation accelerated to 8.97 percent in July, the fastest since 2000 and above analyst estimates of 8.78 percent. Investors are now betting inflation reached its peak in July, leading to demand for peso bonds known as TES, Perez said. 

The yield on Colombia’s local bonds due in 2019 dropped 0.08 percentage point to 7.12 percent, the biggest decrease since July 21.

Finance Minister Mauricio Cardenas said in interview on Caracol Radio that he hopes the central bank will leave the benchmark interest rate unchanged this month as food
price inflation in August will likely be very slow.

It’s not a one-way bet. Should inflation expectations continue to rise, the central bank will likely raise the key lending rate again, Perez said.