The Colombian peso continues to drop against the dollar, which broke through the COP2,500 barrier on Monday. The extent of the dollar’s appreciation came as a surprise for most analysts.
The devaluation of the peso is due to a prolonged drop in the price of crude oil, Colombia’s main export product.
According to weekly Semana, the price of the peso additionally has come under pressure over the concerns over Colombia’s capacity to deal with the steep drop in oil revenue which plunged the country’s trade balance to a record deficit in 2014.
Colombia Registers Record Trade Deficit Due To Falling Oil Prices And Cheap Peso
The low oil price and insecurity about Colombia’s fiscal resilience has forced the currency to lose 5% of its value since January 1 alone. Since July 2014, when one dollar was worth 1,842 pesos, the Colombian currency has lost as much as 35%.
The peso hadn’t broken through the 2,500 mark since April 2009 when the world was suffering an economic crisis due to the 2007/2008 financial crisis.
While the high dollar is good news for the exporters of for example flowers and coffee, the currency ratio is putting strong pressure on imported goods, increasing concerns over inflation.
Colombia’s consumer price index had gone up 3.82% in January compared to the same month last year. The consumer price hike was mostly felt on food markets that saw prices increase 5.41% since last year. The producer price index of grains and milk products went up 10% compared to December 2014.
Colombia’s national government announced last week to be delaying the scheduled spending of $2.44 billion.
Semana reported that markets are waiting for the Central Bank board meeting on Friday and whether the bankers decide to interfere, for example by selling dollars or lowering the interest rate, to curb the peso’s decline.
In times of a highly valued peso, the bank previously purchased dollars to decrease the price of the Colombian currency.