A body of leading business groups asked the government and the central bank to step up their efforts to push down the rising peso and warned that the currency’s appreciation “puts at risk the positive economic outlook for the Colombian economy.” The open letter, released Monday, was signed by some of the most powerful business federations in the country.
The peso has gained more than 13% so far this year on the back of massive influxes of foreign investment into Colombia, driven by high commodity prices.
Colombia is one of several countries, along with Brazil and Japan, worried by the steep appreciation of its currency against the dollar. Colombia, like other nations, sees the surge of its currency as a threat to its economy and has intervened in the foreign exchange market to try to protect exporters.
The central bank announced in September that it would buy a minimum of $20 million daily for at least four months to rein in the currency and build up its international reserves
That measure temporarily halted the peso’s rise, but the currency has recently resumed its surge and now stands at its strongest level in two years. On Monday it closed at COP1,785.65 to the dollar after opening at COP1,785.85.
The central bank, which has been buying the minimum $20 million daily, has been “timid” in its intervention in the spot market, the business groups said. The central bank could buy an additional $10 billion more in the spot market to curb the peso’s appreciation, the letter said.
The business groups also asked the central bank to reduce its benchmark interest rate, which currently stands at historic low of 3%, in hopes that it could weaken the peso. Consumer prices declined 0.14% in September from a month earlier and 12-month running inflation stands at 2.28%, at the bottom end of the central bank’s target range of 2% to 4% level.
“With the current inflation reading it’s possible that the central bank will start discussing another interest rate cut,” said Francisco Chaves, a currency analyst with local brokerage firm Corredores Asociados.
The business groups also recommended that some of the largest state-run firms, including oil producer Ecopetrol SA manage their operations with their suppliers without going through the foreign exchange market.
The government should also consider the imposition of capital controls on short-term inflows into Colombia. The government should impose laws “guaranteeing that these funds will stay in the country for at least one year,” the letter said. Colombian Finance Minister Juan Carlos Echeverry so far has ruled out the imposition of capital controls.
The central bank, however, may soon increase its daily purchases in the spot market, said Chaves. Inflation remains under control and the $20 million daily “is not enough to offset the flow of dollars into the economy,” he said. “We expect to see more aggressive intervention by the central bank,” he said. (Darcy Crowe / Dow Jones Newswires)
