Colombia’s peso fell to a one-week low after Finance Minister Juan Carlos Echeverry said the country should learn from its neighbors and take “more aggressive” action to stem the world’s biggest currency rally.
The currency has appreciated 8.7 percent against the dollar this year, the biggest gainer among all of the 170 currencies tracked by Bloomberg, leading to complaints from exporters such as flower growers and coffee farmers. Central bank chief Jose Dario Uribe said in an interview today that Colombia wants a more devalued exchange rate and that policy makers won’t rule out bigger dollar interventions.
The peso slipped 0.4 percent to 1,784.08 per U.S. dollar, the biggest decline today among a basket of 25 emerging-market currencies tracked by Bloomberg. It earlier touched 1,788, the weakest intraday level since June 6.
“The external environment calls for a peso that isn’t as strong,” said Andres Munoz, the head currency trader in Bogota at Corp. Financiera Colombiana, a financial services holding company. “Echeverry’s comments bring that to light.”
Colombia has been less successful than other countries in the region at curbing currency gains, Echeverry told lawmakers in Bogota yesterday. Experience shows that more central bank intervention in currency markets is compatible with low and stable inflation, he said.
The peso’s fair value is about 1,792 per dollar, and the currency will probably weaken to 1,805 in the next days amid European debt turmoil, Munoz said.
The Brazilian real has weakened 9.7 percent this year as President Dilma Rousseff’s government stepped up measures earlier this year to protect Latin America’s biggest economy from what she called a “monetary tsunami” caused by stimulus policies in rich nations.
“Since about March, the behavior of our currency has been less than satisfactory,” Echeverry said. “Our neighbors are pursuing currency policies that are perhaps more effective than ours.”
Echeverry said he remains opposed to capital controls of the kind employed by Brazil and said Colombia should instead study Peru, whose currency has gained 0.6 percent against the dollar this year.
Colombia should buy dollars more aggressively and follow the purchases with immediate “sterilization” in which the central bank sells bonds to mop up the extra liquidity created, according to Echeverry.
The central bank can issue bonds to reduce liquidity, according to a resolution published on its website April 30. The statement came after Banco de la Republica announced that day that the bank would buy a minimum of $20 million daily in the spot market until at least Nov. 2, extending the program by three months as officials seek to ease the peso’s gains. The central bank hasn’t said if it plans to issue bonds.
“We can buy at any moment more than $20 million per day,” Uribe said today. The central bank could prolong its purchases beyond November, he said.
The peso’s “excessive” appreciation is due to monetary policy in the U.S. that is “lax almost to the point of irresponsibility,” said Echeverry, who once worked as a teaching assistant to Federal Reserve Chairman Ben S. Bernanke.
“Brazil is printing money; the United States is printing money,” Echeverry said. “If you don’t fight this currency war, you suffer.”
The central bank bought $420 million in the currency market in auctions last month, while the government is keeping abroad dividends from state-run oil company Ecopetrol SA to avoid strengthening the peso even further.
Colombia’s economy grew 5.9 percent last year, faster than Brazil and Mexico, and trailing Chile and Peru. There are signs that the economy may now be cooling after the central bank, of which Echeverry is a board member, raised interest rates nine times since the start of 2011 to damp demand powered by credit growth and record foreign investment.
Industrial output fell in March from a year earlier, the first year-over-year contraction since 2009. Urban unemployment rose to 11.4 percent in April, higher than all 18 forecasts of analysts surveyed by Bloomberg.
The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 rose two basis points, or 0.02 percentage point, to 7.07 percent, according to the central bank.
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