Bloomberg News

Colombia Yields Rise to Eight-Week High After Bank Raises Rates

November 25, 2011

Nov. 25 (Bloomberg) -- Yields on Colombia’s peso bonds rose to an eight-week high after the central bank raised interest rates for the first time since July.

The yield on the 10 percent bonds due in July 2024 rose four basis points, or 0.04 percentage point, to 7.71 percent, according to the stock exchange. That’s its highest level since Oct. 4. The bond’s price fell 0.36 centavo to 118.019 centavos per peso.

The seven-member board, led by central bank chief Jose Dario Uribe, increased the overnight rate by a quarter point to 4.75 percent, as forecast by 18 of 35 economists surveyed by Bloomberg. Seventeen analysts expected the bank to leave the rate unchanged. The decision wasn’t unanimous, Uribe said. That makes Colombia the only country in Latin America to raise rates since Brazil started cutting borrowing costs in August as countries shift to safeguarding their economies against a global slowdown.

“While the European crisis is still a concern, policy makers focused on local fundamentals,” said Beatriz Alarcon, a fixed-income analyst at brokerage Acciones y Valores SA in Bogota. “Internal demand remains strong and inflation expectations have been on the rise.”

Colombia’s rate increase to 4.75 percent is “sufficient for now,” Uribe told reporters today after the central bank’s monetary policy meeting.

Annual inflation in Colombia quickened to 4.02 percent in October, above the central bank’s 2 percent to 4 percent target for this year, according to a government report dated Nov. 5. It was the first time since 2009 that inflation exceeded the bank’s target.

The gap between yields on government inflation-indexed bonds due 2013 and similar-maturity fixed-rate debt, a gauge of annual consumer price increase expectations known as the breakeven rate, rose to 3.89 percentage points yesterday from 3.01 percentage points two months ago.

Finance Minister Juan Carlos Echeverry, who is also president of the central bank’s board, told reporters today that the increase in rates sends a “strong” message to the market that inflation will move toward 3 percent, the mid-point of the bank’s target for this year.

Banco de la Republica said today its inflation target for 2012 is also 2 percent to 4 percent.

Concern the European debt crisis is worsening pushed the Colombian peso to a seven-week low today.

The peso plunged 1.2 percent to 1,956.69 per U.S. dollar from 1,932.47 yesterday. Earlier it touched 1,959.88, its weakest level since Oct. 10.

--Editor: Marie-France Han

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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