Bloomberg News

Colombian Currency Falls to Three-Week Low as Europe Saps Demand

June 26, 2012

Colombia’s currency declined to a three-week low as concern Europe’s debt crisis is getting worse sapped demand for higher-yielding, emerging-market assets.

The peso closed little changed at 1,802.77 per dollar after touching 1,809.9, the weakest level since June 5. The currency has fallen 0.8 percent this quarter.

“Investors have been seeking refuge in U.S. Treasuries,” dropping Latin American currencies including the peso, William Florez, an analyst at Helm Bank SA (PFBHELMB)’s brokerage unit in Bogota, said in a phone interview. “Markets are trading laterally, waiting for what may come out of the meeting in Europe.”

The peso’s decline against the dollar before the European Union’s June 28-29 summit pared this year’s rally to 7.5 percent, still the best performance among all of the world’s currencies tracked by Bloomberg.

Chancellor Angela Merkel told German lawmakers in Berlin today that she expects there to be no shared liability for debt in her lifetime, an official at the meeting said. Moody’s Investors Service cut the ratings of 28 Spanish banks yesterday, citing the country’s sovereign debt and rising losses on real estate loans.

Declines in the price of oil, Colombia’s biggest export, contributed to today’s drop in the local currency, said Daniel Lozano, an analyst at Serfinco SA, a brokerage, in Bogota.

‘Key Variable’

“Oil is the key variable that connects us to the global market,” Lozano said in a phone interview. “It has an important impact on exports, foreign direct investment and fiscal numbers.”

Crude oil for August delivery traded below $80 for a fourth day today in New York.

Colombian President Juan Manuel Santos scheduled a meeting today with members of the central bank’s board, according to a statement on the presidency’s website. The meeting comes before Banco de la Republica’s policy meeting June 29.

Policy makers will leave the overnight lending rate unchanged at 5.25 percent, according to all 27 economists surveyed by Bloomberg.

Colombia has been less successful than other countries in the region at curbing currency gains and should take “more aggressive” action, Finance Minister Juan Carlos Echeverry told lawmakers June 12. More central bank intervention in currency markets is compatible with low and stable inflation, he said. The peso has dropped 1.5 percent since his remarks.

Banco de la Republica has said it will buy a minimum of $20 million daily in the spot market until at least Nov. 2, while the government is keeping abroad dividends from state-run oil company Ecopetrol SA (ECOPETL) to avoid strengthening the peso.

Central bankers probably won’t announce additional currency measures at this week’s meeting after recent declines in the peso, according to Lozano.

The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 rose one basis point, or 0.01 percentage point, to 6.98 percent, according to the central bank. The price fell 0.058 centavo to 124.087 centavos per peso.

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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