Colombia’s peso on Monday fell to a 10-week low after President Juan Manuel Santos said the South American country will take measures this week to ease the currency’s rally.
Colombia has been studying measures “carefully” given the “complicated” situation, Santos said Oct. 23, according to comments posted on the presidential website. His words come after Group of 20 finance ministers and central bankers ended talks in South Korea, pledging to avoid weakening their currencies to boost exports and to let markets increasingly set foreign-exchange values.
The peso fell to as low as 1,835.6 per U.S. dollar today, its weakest level since Aug. 13. The currency declined 0.1 percent to 1,829.90 per dollar at 3:20 p.m. New York time, from 1,828.65 on Oct. 22. The peso has jumped 11.7 percent this year, the best performance among six major Latin American currencies tracked by Bloomberg.
“The market has been pricing in possible measures that will likely come from the central bank’s” monetary policy meeting on Oct. 29, said Munir Jalil, chief economist at Citigroup Inc.’s Colombia unit.
Government and central bank officials are seeking to slow the peso’s rally, which Colombia’s business associations said in a letter this month threatens jobs and “jeopardizes the Colombian economy’s positive outlook.”
Capital Controls
The central bank said Sept. 15 it will buy a minimum of $20 million daily for at least four months. While the bank has maintained that average through auctions, central bank chief Jose Dario Uribe has said Banco de la Republica can buy “much more” or extend purchases beyond the scheduled four months.
Finance Minister Juan Carlos Echeverry said earlier this month that the government will keep $1.4 billion equivalent to the August and December dividend payments from state oil company Ecopetrol SA overseas.
Banco de la Republica may seek to limit borrowing from abroad, Jalil predicted.
Speculation Colombia will impose capital controls increased after Brazil last week raised taxes on foreign inflows for the second time this month to stem the real’s appreciation.
Uribe said in an Oct. 19 presentation that he sees no need to implement capital controls as the costs outweigh the benefits. Should that scenario change the government may reconsider capital controls, Uribe said.
“If you look at the levels the peso is trading at now, you might think there is no need for further measures,” said Jalil. Still “the price is based on expectations of the new measures that will be announced, and as soon as they are, we’ll see a move depending on how the market views the changes.”
The peso has dropped 2.2 percent since Banco de la Republica began its daily dollar purchases last month.
The Colombian currency will likely trade between 1,830 and 1,840 this week, with a possible “correction” around 1,825, while investors await the currency announcements, according to Andres Muñoz, head currency trader at Corporacion Financiera Colombiana SA in Bogota.
