Colombia’s peso rose to a 10-week high amid an increase in the price of oil and after the government said it expects the local currency to trade this year at a stronger level than previously forecast.
The government’s revised financing plan assumes an exchange rate of 1,956 per U.S. dollar this year, compared to a previous forecast of 2,365, Finance Minister Oscar Zuluaga said in a presentation to investors and reporters today. It assumes an exchange rate of 1,910 next year.
“That’s an important adjustment,” said Camilo Perez, head analyst at Banco de Bogota SA, Colombia’s second-biggest bank. “Significant oil investment will continue to flow into Colombia and the government will need to bring in dollars, which will keep the peso strong.”
The peso gained 0.3 percent to 1,919.25 per U.S. dollar at 2:41 p.m. New York time, from 1,924.56 on June 11. That’s its strongest level since April 6. Colombian markets were closed yesterday for a national holiday. The peso has jumped 6.5 percent so far this year, the best performance among world currencies tracked by Bloomberg.
Oil, Colombia’s main export, climbed as much as 2.7 percent today to $77.16 a barrel.
The yield on Colombia’s benchmark 11 percent bonds due July 2020 rose two basis points, or 0.02 percentage point, to 7.98 percent, according to Colombia’s stock exchange. The bond’s price fell 0.131 centavo to 120.385 centavos per peso.
Budget Deficit
The bond’s yield earlier fell to as low as 7.93 percent after Zuluaga said the government would sell fewer securities in the local market as boosted oil and tax revenue reduces the budget deficit.
“The market had an initial positive reaction, but since those announcements were widely expected, the bond later erased gains,” said Perez.
Colombia cut its 2010 consolidated budget deficit forecast to 3.6 percent of gross domestic product from a previous 3.7 percent, and the central government deficit forecast to 4.4 percent from 4.5 percent, Zuluaga said.
The government also reduced the amount of peso bonds it will sell in the local market this year to 25.5 trillion pesos ($13.3 billion) from an initial target of 26 trillion pesos, he said. Colombia maintained its target for peso bond auctions at 13 trillion pesos.
Colombia raised its forecast for economic growth this year to 3 percent from 2.5 percent, while expecting the economy to expand 4 percent next year, according to Zuluaga.
“They have improved on expectations, especially in terms of growth, which will lead to better funding,” said Francisco Chaves, a fixed-income strategist at Bogota-based brokerage Corredores Asociados SA. “A smaller deficit as a percentage of gross domestic product means that they will have to sell fewer bonds for funding.”
(Andres R. Martinez and Andrea Jaramillo, Bloomberg)