Bloomberg News

Colombia Bond Yields Rise as Central Bank Signals Higher Rates

October 31, 2011

Oct. 31 (Bloomberg) -- Colombia’s peso bonds fell, pushing yields higher, after the central bank signaled it may raise interest rates should global confidence continue to be reestablished.

The yield on the country’s 9.25 percent bonds due in May 2014 rose one basis point, or 0.01 percentage point, to 6.14 percent. The price fell 0.035 centavo to 107.040 centavos per peso.

“The central bank sent a hawkish signal,” said Daniel Lozano, an analyst at Serfinco SA brokerage in Bogota. “We’ve seen less risk aversion in October, and as that continues and internal dynamics remain strong” the central bank may raise interest rates 25 basis points to 4.75 percent next month, he said.

Policy makers on Oct. 28 left the overnight lending rate unchanged at 4.5 percent for a third month, matching the forecasts of 28 of 29 economists surveyed by Bloomberg. The decision wasn’t unanimous, central bank chief Jose Dario Uribe told reporters.

A lending boom in Colombia has fueled the biggest jump in retail sales in more than a decade and faster-than-forecast inflation in September, making Colombia the only Latin American country where traders expect interest-rate increases this year.

Latin America’s fifth-largest economy will expand as much as 6.5 percent this year, according to the central bank. That compares with 4.3 percent in 2010 and would be the fastest growth since 2007.

‘Less Monetary Stimulus’

“If internal real indicators continue with the current dynamism and major contagion from the external situation is not observed, it is likely that the economy requires less monetary stimulus,” the central bank said in its statement.

The peso declined 0.2 percent to 1,865.75 per U.S. dollar, from 1,861.6 on Oct. 28.

Banco de la Republica also said on Oct. 28 it will sell $200 million in dollar options to control the peso’s volatility. The sale of the options will be triggered when the peso’s 20-day moving average changes by more than 4 percent.

The options replace the $200 million the central bank said last month it would auction in the spot market when the peso’s 10-day moving average changed by more than 2 percent. No such auction was carried out, Uribe said.

“Should prospects for global growth and oil prices improve and the appreciation pressure on the Colombian peso resume, we will likely see renewed calls for Banco de la Republica ‘to do something’ to weaken the currency,” Nader Nazmi, senior Latin American economist at BNP Paribas in New York, wrote in a report today. “The option-based foreign exchange intervention mechanism won’t do the job and Banco de la Republica will likely introduce yet additional foreign exchange rules and regulations.”

--Editors: Brendan Walsh, Richard Richtmyer

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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