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Colombia’s peso headed for its biggest weekly drop since May on speculation the central bank will cut borrowing costs as soon as today and announce increased dollar purchases to ease gains in the local currency.
The peso has slumped 0.6 percent this week to 1,790.6 per dollar at 10:25 a.m. in Bogota. That’s its biggest weekly drop since the period ended May 18. The peso is little changed today and has jumped 8.3 percent this year, the best performance among all currencies tracked by Bloomberg.
“The market is focused on what will come out of today’s central bank meeting,” Camila Estrada, the chief analyst at Bogota-based Helm Bank SA (PFBHELMB), said in a phone interview.
The central bank will lower the overnight lending rate in today’s meeting by a quarter percentage point to 5 percent, according to 11 of 35 economists surveyed by Bloomberg. Twenty- four expect policy makers to keep the key rate unchanged for a fifth straight month, ignoring calls from Colombian President Juan Manuel Santos, who has urged policy makers to cut rates after recent data showed the economy losing speed.
In a July 20 speech to mark Colombian Independence Day, Santos also reiterated that the central bank should step up daily dollar purchases to ease gains in the peso. Banco de la Republica has said it will buy a minimum of $20 million daily in the spot market until at least Nov. 2.
Estrada forecasts policy makers will increase the daily dollar purchases to as much as $40 million as the peso gains toward 1,750 per dollar.
The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 rose three basis points, or 0.03 percentage point, to 6.77 percent, according to the central bank. Yesterday the yield fell to 6.75 percent, the lowest level on a closing basis since the securities were first sold in 2009.
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