Bloomberg News

Colombian Peso Bond Yields Rise After Surprise Rate Increase

January 31, 2012

Jan. 30 (Bloomberg) -- Colombia’s peso bonds fell, pushing yields on benchmark securities to increase for a third day, after the central bank unexpectedly raised interest rates.

The seven-member board, led by bank chief Jose Dario Uribe, increased the overnight interest rate by 25 basis points, or 0.25 percentage point, to 5 percent, surprising all except one of 32 economists surveyed by Bloomberg. Thirty-one analysts forecast no change.

The yield on Colombia’s benchmark 10 percent bonds due in July 2024 rose four basis points to 7.38 percent, according to the stock exchange. The bond’s price fell 0.411 centavo to 120.775 centavos per peso.

“A very surprising decision,” Italo Lombardi, a Latin American economist and strategist from Standard Chartered, wrote in a note to clients. “Not only has the external picture deteriorated significantly, but the peso has rallied more than 6 percent over the last month, which could improve the inflation outlook significantly.”

Bank lending continues to grow at “high” levels, housing prices remain at record highs and inflation expectations have risen, Banco de la Republica said in its statement.

“The latest information suggests that in the fourth quarter the Colombian economy continued to show strong momentum,” policy makers said in the statement.

Colombia’s economy probably grew more than 5.5 percent in 2011 and may grow between 4 percent and 6 percent this year, the central bank said.

Colombian Peso

The move follows a 25-basis-point increase in November, when policy makers cited the need to bolster credibility amid rising inflation expectations. Colombia’s rate increases are in contrast to cuts in emerging markets worldwide. Brazil, Chile, Russia, the Philippines, Israel, Romania, Moldova, and Mauritius all reduced benchmark lending rates within the past two months amid concerns Europe’s debt crisis will derail global growth.

Agriculture Minister Juan Camilo Restrepo last week asked the central bank not to “add fuel to the fire” by raising interest rates further as the peso’s rally has “strongly” hurt coffee, flower and banana exporters.

The peso fell 0.6 percent to 1,817.75 per U.S. dollar, from 1,807.03 on Jan. 27, the biggest decline on a closing basis since Dec. 28. The currency market closed before Banco de la Republica’s rate announcement.

The peso has jumped 6.6 percent this year, the fourth-best performer after the Hungarian forint, Brazilian real and the Mexican peso among a basket of 25 emerging-market currencies tracked by Bloomberg.

Finance Minister Juan Carlos Echeverry, who is also president of the central bank’s board, said the government won’t bring any dollars into Colombia for financing, including $1 billion in dividends from state oil company Ecopetrol SA.

--With assistance from Blake Schmidt in Bogota. Editors: Brendan Walsh, 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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