Colombia’s peso had its biggest drop
this year as expectations the central bank will cut interest
rates tomorrow sapped investor demand for the local currency.
The peso slid the most since November, dropping 1.7 percent
to 2,393 per dollar at 3:55 p.m. New York time, from 2,352
yesterday, according to the Colombian foreign-exchange electronic
transactions system, known as SET-FX. The peso touched 2,400, the
lowest since Oct. 31.
“Tomorrow we have a meeting of the central bank and the
market is expecting a cut of between 50 to 100 basis points,
which makes it less attractive to have long positions in pesos,”
said Felipe Munoz, a trader at Bogota-based brokerage Corredores
Asociados. A long position is a bet that a currency will gain. A
basis point is 0.01 percentage point.
Policy makers will lower Colombia’s overnight lending rate
50 basis points to 9 percent, according to the median forecast of
36 economists surveyed by Bloomberg News. The central bank
reduced borrowing costs by a half-percentage point on Dec. 19,
the first cut in three years.
A drop in the price of crude oil, Colombia’s biggest export,
put added pressure on the peso, Munoz said.
A report earlier this week from the Royal Bank of Scotland
forecasting the peso will weaken to an average of 2,750 per
dollar in the first quarter also hurt appetite for the currency,
said David Duarte, a Latin America analyst at 4cast in New York.
‘Scared’
“That really scared some traders,” said Duarte. “If you
think about it, they have a point: Colombia has an underlying
weakness and the country doesn’t have the level of international
reserves to prop up the peso like other nations such as Brazil
and Mexico have.”
The peso’s decline in the past few days forced local and
offshore investors to sell, said Andres Ledesma, head currency
trader in Cali at Banco de Occidente SA. The currency has plunged
5.6 percent in the past five days, the biggest drop among the six
most-traded currencies in Latin America.
“Some were caught off guard and were forced to buy dollars
when they reached their stop loss,” said Ledesma. He forecasts
the peso will weaken to 2,450 by June or July.
The peso may strengthen to 2,350 in the “next few weeks”
as companies buy pesos to pay for taxes in the local currency,
Ledesma predicts.
The yield on Colombia’s 11 percent bonds due in July 2020
fell two basis points to 9.74 percent, according to Colombia’s
stock exchange. The price rose 0.142 centavo to 108.358 centavos
per peso. (Bloomberg)