Peso plunges after govt announces dollar purchases

The Colombian peso fell 1.66% on Wednesday after the government announced it would buy dollars to readjust the exchange rate, following the peso’s sharp appreciation in recent days.

The Colombian Central Bank said it would buy $20 million a day in an attempt to stabilize the currency, causing the peso to close 1.66% down, at 1,927 pesos to the dollar.

So far in 2010 the Colombian peso has appreciated 7.78%. Bloomberg says that the peso is the best performing currency against the dollar this year among the 171 currencies it tracks.

The dollar purchase will not be sterilized, meaning that it could affect the money supply and hence the rate of inflation. It will be carried out by auction.

The purchase is intended both to halt the peso’s sharp rise, which is harmful for Colombian exports, and to increase the country’s dollar reserves.

The peso hit a four-month high on Tuesday, hitting a low of COP1893.39 and closing at COP1,895.45 on Tuesday.

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