Colombia’s peso bonds fell, pushing yields up the most in two weeks, after higher-than-expected inflation last month curbed demand for fixed-rate securities.
The yield on 10 percent peso-denominated debt due in July 2024 rose two basis points, or 0.02 percentage point, to 7.10 percent at 10:45 a.m. in Bogota, according to the central bank. That is the biggest increase on a closing basis since May 23. The price fell 0.187 centavo to 123.069 centavos per peso.
Consumer prices rose 0.30 percent in May after a 0.14 percent increase in the prior month, the national statistics agency said in a report yesterday. The reading was higher than all except one of the 30 estimates in a Bloomberg News survey.
“The number surprised,” said Camilo Perez, the head analyst at Banco de Bogota, the nation’s second-biggest bank. “We still don’t see evidence of inflation pressures from the demand side, so this shouldn’t lead to major changes in interest rate forecasts.”
The annual inflation rate rose to 3.44 percent last month from 3.43 percent in April. It was higher than the 3.32 percent median estimate.
Finance Minister Juan Carlos Echeverry said yesterday that inflation will slow toward the government’s 3 percent midpoint target this year.
Inflation is at “a reasonable level,” Echeverry told reporters in Bogota yesterday after a hearing with lawmakers. “Inflation will slow toward 3 percent during the rest of the year.”
Colombia’s peso appreciated 0.6 percent to 1,781.75 per U.S. dollar. Earlier it touched 1,781.75, its strongest level since May 15. It is up 8.8 percent this year, the best performance among all the currencies tracked by Bloomberg.
Increased dollar inflows, sparked by companies buying the local currency before tax payments this month, are probably driving gains in the peso, Felipe Hernandez, a strategist at Royal Bank of Scotland Group Plc, wrote in a report today.
“Additional appreciation in June seems likely as the deadline for large companies to pay their income tax extends between June 8 and June 25,” he wrote.
Colombia’s central bank will likely leave interest rates unchanged through year-end, Francisco Rodriguez, an economist at Bank of America Merrill Lynch in New York, wrote in a research report today.
Policy makers left the target overnight lending rate unchanged last month at 5.25 percent. Banco de la Republica has raised the benchmark nine times since February 2011, bringing it up from a record low 3 percent.
“We do not see this information leading to a change in Colombia’s monetary policy stance,” Rodriguez said. “We see inflationary pressures as sufficiently subdued, so we view any impact on the equilibrium of forces within the monetary authority as unlikely.”
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