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Economy

Colombia’s peso touches 6-month high despite intervention

by Adriaan Alsema February 20, 2012

Colombia news - peso

Colombia’s peso was trading at a six-month high Monday morning despite persistent efforts by the government and central bank over the past few weeks to stem the currency’s gains.

Cautious expectations of another Greek bailout are propelling investors to add to their emerging markets bets, pushing Colombia’s currency to COP1,773, its strongest level since mid August, and 0.6% stronger from Friday’s close.

On Feb. 3, Colombia’s central bank said it would start buying $20 million daily in the spot forex market to help soak up excess U.S. currency that’s been flowing into the country’s booming oil and coal sectors. The bank wants to weaken the peso because it is making Colombia’s exported products less competitive.

For its part, Colombia’s government said it would hold off on repatriating $1 billion worth of oil profits this year, which it hopes will also help stem the peso’s gains.

While these measures have modestly slowed the pace of the peso’s gains, analysts say the dollar flow toward Colombia from foreign investment is probably too great to halt or reverse the trend.

The peso’s recent gains are also related to the central bank’s decision last month to increase its benchmark interest rate to 5.0%, citing the need to cool down a surging economy and inflationary pressures. So-called carry traders in the forex market are taking advantage of the higher rate to borrow currencies such as the dollar at payback rates near zero to buy the peso and pick up easy yields.

Colombia pesoeconomy

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