Bloomberg News

Colombia Peso Falls to Lowest This Year on Europe Debt Concern

October 03, 2011

Oct. 3 (Bloomberg) -- Colombia’s peso fell to its lowest level this year as concern Greece will default and deepen Europe’s debt crisis reduced demand for higher-yielding, emerging-market assets.

The peso fell 1.5 percent to 1,960.95 per U.S. dollar at 2 p.m. New York time, from 1,931.98 on Sept. 30. That’s the lowest since Dec. 28. The peso’s 10 percent plunge from a three-year high in mid-July led Colombia’s central bank on Sept. 30 to end a one-year daily dollar purchase program aimed at stemming gains in the currency, and instead hold dollar auctions to ease the currency’s volatility.

“In the last few weeks, we’ve seen aggressive profit- taking in emerging markets as investors acknowledge these countries will see their economies hurt by the international environment,” said Felipe Campos, head analyst at Alianza Valores SA brokerage in Bogota. “This view will probably continue to lead to declines in emerging markets.”

European finance ministers gathered today to consider how to shield banks from the debt crisis and boost the region’s rescue fund after Greece missed a deficit target for 2012. The officials plan to meet again on Oct. 13 to decide whether Greece’s austerity push is enough to win the sixth bailout payment.

In a bid to ease the peso’s “extreme volatility,” Colombia’s central bank said it will auction $200 million in the spot market when the exchange rate moves more than 2 percent above or below its 10-day moving average. The 10-day moving average will begin to apply Oct. 14, the bank said in a statement today.

Dollar Purchases

After a rout in global markets wiped out the peso’s gains this year, Banco de la Republica also said Sept. 30 it ended a program of purchasing a minimum of $20 million daily in the currency market. The currency has dropped 2.8 percent in 2011.

The daily dollar purchases, which were initially announced in March 2010 and ran through June 30 of that year, were re- started in September 2010 and extended until the end of last month.

The central bank’s announcement is helping ease the peso’s slide today, according to Campos.

“As the auctions help ease volatility, investors bet the peso won’t fall as much,” Campos said. “It’s more psychological than anything else. What we saw in 2008 is that when the market enters panic mode, we’ll still see episodes of a lot of volatility.”

The yield on Colombia’s benchmark 10 percent bonds due in July 2024 rose 20 basis points, or 0.2 percentage point, to 7.79 percent. The yield is the highest since July 25. The bond’s price fell 1.85 centavos to 117.411 centavos per peso.

--Editors: Richard Richtmyer, Glenn J. Kalinoski

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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