Bloomberg News

Colombia Peso Gains to Four-Month High on Steeper Interest Rate

February 01, 2012

Feb. 1 (Bloomberg) -- Colombia’s peso rose to a four-month high as steeper interest rates and gains in global stocks boosted appetite for the South American nation’s higher-yielding assets.

The peso climbed 0.6 percent to 1,799.63 per U.S. dollar, from 1,810.40 yesterday. Earlier it touched 1,793.15, its strongest level since Sept. 9. The currency has gained 7.7 percent this year, the second-best performance after the Mexican peso among the six most-traded currencies in Latin America.

“Rate differentials are widening and that will continue as the central bank raises” borrowing costs further, said Omar Escorcia, an analyst at Asesores en Valores SA brokerage in Bogota. “We’re seeing more optimism abroad” pushing gains in Latin American currencies today, Escorcia said.

Colombia’s central bank on Jan. 30 raised the overnight lending rate 25 basis points, or 0.25 percentage point, to 5 percent, surprising all except one of 32 economists surveyed by Bloomberg. By comparison, counterparts from Brazil to Indonesia have trimmed interest rates to fend off the effects of Europe’s debt crisis. Banco de la Republica will raise the key rate to 6 percent by year-end, Escorcia predicts.

Stocks in the U.S. and Europe rose amid signals that manufacturing growth is gathering pace from America to China.

Agriculture Minister Juan Camilo Restrepo said yesterday the central bank’s rate increase will strengthen the peso further to the detriment of the nation’s farmers and asked that Banco de la Republica buy dollars in the spot market to ease gains in the local currency. Colombia’s flower and banana associations asked that policy makers take ‘decisive’ measures to halt the peso’s rally, according to a joint e-mailed statement today.

Yields Fall

In a bid to ease gains in the currency, the central bank said Oct. 28 it will sell $200 million in dollar options whenever the peso’s 20-day moving average changes by more than 4 percent. No options have been auctioned since the announcement.

The yield on the nation’s 10 percent bonds due in July 2024 fell two basis points, or 0.02 percentage point, to 7.33 percent, according to the central bank. The price rose 0.198 centavo to 121.2630 centavos per peso.

Colombia’s central government budget deficit was 2.9 percent of gross domestic product last year, less than the government’s December forecast of 3.2 percent, Correval SA brokerage said, citing a meeting today between Finance Ministry officials and investors. Officials from the ministry didn’t immediately answer calls when contacted by Bloomberg.

The government “temporarily” suspended auctions of short- term notes, known as TCOs, Correval said, citing the unidentified officials.

--Editors: Brendan Walsh, Marie-France Han

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

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


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