Colombia’s peso bonds rose after an unexpected decline in consumer prices last month fueled speculation that the central bank will cut borrowing costs further this year.
Prices fell 0.02 percent in July, compared with a gain of 0.08 percent in June, the national statistics agency said in an Aug. 4 report. The median forecast of economists surveyed by Bloomberg was for a 0.06 percent increase. Annual inflation slowed to 3.03 percent, within the central bank’s 2 percent to 4 percent target.
“This is an additional sign that in terms of inflation the central bank feels comfortable and therefore there is room to cut the interest rate further if needed,” Daniel Lozano, an analyst at Serfinco SA brokerage in Bogota, said in a telephone interview.
The yield on the government’s 11.25 percent peso- denominated debt due in October 2018 fell five basis points, or 0.05 percentage point, to 5.99 percent, according to the central bank. The price rose 0.257 centavo to 126.585 centavos per peso.
Today’s rally extended the decline in yields on the securities to 24 basis points since the central bank unexpectedly cut the overnight lending rate by a quarter- percentage point to 5 percent on July 27.
The peso erased an earlier gain, declining 0.1 percent to 1,788.50 per U.S. dollar. It has gained 8.4 percent this year, the best performance after the Chilean peso among Latin America currencies tracked by Bloomberg.
Colombian Finance Minister Juan Carlos Echeverry stepped up pressure on the central bank to boost dollar purchases and damp a rally in the peso that threatens to undermine local industry and farmers.
Echeverry said in an Aug. 3 interview that increased daily dollar purchases and boosted spending on infrastructure in the second half will help Colombia achieve his growth target of as much as 4.8 percent this year.
Central bank chief Jose Dario Uribe reiterated July 27 that Banco de la Republica will keep buying a minimum of $20 million daily in the spot market until at least Nov. 2.
A report from the Finance Ministry released last month said the central bank should buy $54 million daily to reach an “optimum” level of international reserves.
To contact the reporter on this story: Andrea Jaramillo in Bogota at email@example.com
To contact the editor responsible for this story: Brendan Walsh at Bwalsh8@bloomberg.net