Bloomberg News

Colombian Peso Gains to Four-Month High on Fed’s Rate Pledge

January 26, 2012

Jan. 26 (Bloomberg) -- Colombia’s peso strengthened to a four-month high after the Federal Reserve said yesterday it will keep the benchmark U.S. interest rate low until at least late 2014, bolstering demand for higher-yielding assets.

The peso advanced 0.1 percent to 1,810.80 per U.S. dollar, from 1,812.65 yesterday. Earlier it reached 1,794.51, the strongest level since Sept. 9. The peso has gained 7.1 percent this month, the third-best performer among emerging market currencies after the Hungarian Forint and Mexican peso.

“Investors are paying attention to the U.S. as the European crisis has been quiet,” said Santiago Melo, an analyst at Alianza Valores SA in Bogota. “The Fed decision to leave rates low until 2014 has helped strengthen the peso” by encouraging investors to seek higher yields in the South American country, he said.

The Federal Open Market Committee said yesterday that economic conditions are likely to warrant “exceptionally low levels for the federal funds rate at least through late 2014.”

Colombia’s central bank should refrain from raising interest rates as the peso’s rally hurts farming exports, Agriculture Minister Juan Camilo Restrepo said today according to an e-mailed government statement.

Colombia’s central bank increased benchmark lending rates in November by a quarter percentage point to 4.75 percent. Economists expect Colombia’s central bank to hold the overnight rate at 4.75 percent at a Jan. 30 policy meeting, according to the median estimate among 25 analysts surveyed by Bloomberg.

The yield on Colombia’s benchmark 10 percent bonds due in July 2024 rose three basis points, or 0.03 percentage point, to 7.29 percent. The bond’s price fell 0.280 centavo to 121.649 centavos per peso.

--With assistance from Andrea Jaramillo in Bogota. Editors: Brendan Walsh, David Papadopoulos

To contact the reporter on this story: Blake Schmidt in Bogota at bschmidt16@bloomberg.net

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


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