The Colombian peso continued its decline on Monday, hitting the 2,000 peso-to-dollar mark for the first time since March 20, depreciating 3.6% over the past month.
On September 26, the Colombian Central Bank will decide on whether or not it will continue its dollar purchases, which were nearly $2 billion in the third quarter alone as the central bank seeks to increase its dollar reserves.
MORE: Stronger dollar and lower oil investment bring Colombian peso to weakest level in four months
Such purchases would put further selling pressure on the peso.
However, with the US Federal Reserve likely to raise interest rates in the coming year, purchasing dollars for pesos offers a way for the country to insulate itself from potential investor flight out of the Colombian currency.
According to Fedesarrollo, a Colombian business and consumer confidence agency, the peso should settle at around 1,950 and 2,000 to the dollar over the medium term.
With an already high benchmark interest rate at 4.5% and economy operating at “near potential” according to the Finance minister, the central bank will have its hands full this Friday when it’s debating its own interest rates.
Sources
- El dólar en Colombia tocó la barrera de los $ 2.000 (Caracol)
- Colombian Peso Leads Emerging-Market Drop on Central Bank Wagers (Bloomberg)
