The Colombian peso was nearly unchanged Monday, the first day of trading after the central bank increased its key lending rate and announced that it extended its dollar-buying program designed to soak up U.S. currency from the spot market.
Many investors had already discounted the bank’s decision to raise its key rate by 25 basis points to 5.25%, a move that makes Colombian assets more attractive to foreign investors and could trigger gains in the peso. The peso traded Monday at COP1,777.55 to the dollar from COP1,776.50 the session earlier.
“There’s a relative calm in the market right now,” said Jorge Cardozo, an analyst for Bogota-based brokerage firm Corredores Asociados. “Most people had already priced in the bank’s decision.”
The new wave of calm in the Colombian foreign exchange market comes after the peso appreciated sharply at the start of the year. The peso has gained more than 8% against the dollar since the beginning of the year, posing a major challenge to administration of President Juan Manuel Santos.
Business federations and exporters have demanded that the government take forceful measure to curb the currency’s surge, which has made Colombian exports less competitive.
The government’s measures so far have consisted of buying a minimum of $20 million daily in the sport market, a strategy designed to mop up excess U.S. currency and build up the bank’s international reserves.
The central bank on Friday extended the program until at least Aug. 4. The bank announced the program early this month and at the time said the program would last for at least three months.
Those measures haven’t had any substantial impact on the exchange rate, Cardozo said. The central bank’s efforts will likely have a stronger impact in the market in April, when companies operating in Colombia pay their yearly taxes and several of them have to bring in dollars from abroad to pay their taxes, Cardozo added.
Colombian Finance Minister Juan Carlos Echeverry has blamed international factors, such as the U.S. Federal Reserve’s decision to keep interest rates very low until 2014 which encourages investment flows into economies with higher-yielding securities, for the strength of the peso.