Peso falls to 7-week low as Santos seeks to curb rally

Colombia’s peso on Tuesday fell to a seven-week low after President Juan Manuel Santos said officials will “soon” announce additional measures to ease the peso’s rally.

The peso dropped for a sixth day, falling 0.3 percent to 1,815.85 per dollar at 2:03 p.m. New York time, from 1,810 yesterday. It earlier touched 1,821.70, its weakest level since Sept. 1. The peso is up 12.6 percent this year, the second-best performance after Japan’s yen among all currencies tracked by Bloomberg. Colombian markets were closed yesterday for a national holiday.

Speculation Colombia will impose capital controls increased after Brazil yesterday raised taxes on foreign inflows for the second time this month to stem the real’s appreciation, according to Julian Cardenas, chief economist at Bogota-based brokerage Corredores Asociados SA. Central bank chief Jose Dario Uribe said in a presentation today that capital controls currently aren’t justified as the costs of imposing the measures outweigh the benefits.

“Capital controls are a legitimate tool and are the cause of a lot of noise in the market today,” said Cardenas. “Although we can’t discard that officials may impose capital controls, they will likely adopt other measures first.”

Government and central bank officials are seeking to ease a rally in the peso that the country’s business associations said in a letter this month threatens jobs and “jeopardizes the Colombian economy’s positive outlook.

Banco de la Republica said Sept. 15 it will buy a minimum of $20 million daily for at least four months. While the central bank has bought an average of $20 million a day, it may increase the amount it purchases daily, according to Cardenas.

The central bank may also lower its overnight lending rate which currently stands at a record-low of 3 percent, Cardenas said.

Colombia will “soon” announce a package of additional measures and will also seek to help businesses hurt by the strengthening peso by cutting costs related to energy and import tariffs, Santos was quoted as saying in an interview with La Republica daily.

Finance Minister Juan Carlos Echeverry said last week the government will keep $1.4 billion in dividend payments from state oil company Ecopetrol SA overseas in a bid to ease the peso’s rally. The August dividend was left abroad and the same will be done with $700 million from the December dividend, he said.

Colombian officials may announce capital controls as soon as the next central bank monetary policy meeting slated for Oct. 29, Morgan Stanley analyst Daniel Volberg said in a report yesterday.

“So far policy makers have made an effort to rely on market-friendly measures, but the peso has continued to rally raising the real possibility that more onerous measures could be introduced sooner rather than later,” Volberg wrote.

The yield on the nation’s benchmark 11 percent bonds due 2020 fell 2 basis points, or 0.02 percentage point, to 7.05 percent, according to Colombia’s stock exchange. The bond’s price rose 0.091 centavo to 127.115 centavos per peso. (Andrea Jaramillo / Dow Jones Newswires)

Related posts

Colombia seeks $10B tax revenue hike to finance COVID-19 recovery programs

Coronavirus crisis bankrupted 500K of Colombia’s small businesses

Glencore to abandon mining in Colombia amid growing woes