Peso falls to 3-month low on currency measures

Colombia’s peso on Wednesday fell to a three- month low on bets the central bank will announce additional measures to ease the peso’s rally after President Juan Manuel Santos said the nation will take further steps this week.

The peso dropped to as low as 1,849.50 per U.S. dollar, its weakest level since July 28. The currency slipped for a fifth day, falling 0.4 percent to 1,848.53 per dollar at 3:15 p.m. New York time, from 1,840.35 yesterday. The peso has jumped 10.6 percent this year, the best performance among six major Latin American currencies tracked by Bloomberg.

Government and central bank officials are seeking to ease a rally in the peso that the country’s business associations said in a letter this month threatens jobs and “jeopardizes the Colombian economy’s positive outlook.” Santos, who asked central bankers in August to take “more bold and creative” action, said today that the package of currency measures that will be taken “will help a lot” in stemming gains in the peso, according to comments posted on the presidential website.

“More measures are expected given the appreciation pressures the peso will continue to face,” said Maria Paola Figueroa, senior economist at Banco Bilbao Vizcaya Argentaria SA’s Colombia unit.

Colombia will attract around $10 billion in foreign direct investment this year and more than $1.2 billion in portfolio investment, Bogota-based brokerage Corredores Asociados said in a report last month. The nation received $7.2 billion of foreign direct investment in 2009 — of which 80 percent went into oil, coal and mining — after a record $10.6 billion the previous year, according to the central bank.

The central bank said Sept. 15 it will buy a minimum of $20 million daily for at least 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.

While many market participants are betting officials will announce further measures after the Oct. 29 monetary policy meeting, Figueroa expects policy makers will wait for the peso to strengthen beyond 1,800 before acting.

“Verbal intervention has been effective, and while we’ll see a clear indication more measures are to come, policy makers will likely wait until these are really needed,” said Figueroa.

She predicts measures will include boosting the amount of dollars Banco de la Republica buys daily through auctions and also imposing capital controls. Colombia may seek to limit portfolio inflows and borrowing abroad, Figueroa said.

Interbolsa, Colombia’s biggest brokerage, said in a report this week that policy makers may opt to cut the overnight lending rate from a record low of 3 percent. Bank of America Corp. said in a report yesterday that while central bankers will leave the key rate unchanged this month “it is increasingly likely that the bank’s next action will be a rate cut.”

Maria Mercedes Cuellar, president of Colombia’s banking association, warned against lowering interest rates in a column published today in Bogota-based La Republica newspaper.

Cutting rates “would favor the formation of bubbles and overflow of loans, risking financial stability,” she wrote. (Andrea Jaramillo / Bloomberg)

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