Colombia’s peso fell to its weakest level in three weeks on speculation the central bank will begin buying dollars directly in the market in a bid to ease the local currency’s rally.
The peso dropped for a fourth day, falling 0.4 percent to 1,808.63 per dollar at 2:15 p.m. New York time, from 1,801.80 yesterday. The peso is up 13 percent this year, the second-best performance after Japan’s yen among all currencies tracked by Bloomberg.
In a bulletin published on its website yesterday, Banco de la Republica updated its regulations on how it “intervenes” in the currency market. The modification allows the central bank to more easily buy dollars directly in the market, according to Camilo Perez, head analyst at Banco de Bogota, Colombia’s second-biggest bank.
“The market is reading this as if the central bank is getting ready to intervene discretionally and it will do so at any moment,” said Perez. “If it does so or not, it is definitely sending a clear signal, playing with market psychology and scaring people.”
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 week threatens jobs and “jeopardizes the Colombian economy’s positive outlook.”
Colombia’s central bank said Sept. 15 it will buy a minimum of $20 million daily for at least four months. While Banco de la Republica has purchased an average daily of $20 million through auctions, central bank chief Jose Dario Uribe has said the bank can buy “much more” or extend purchases beyond the currently scheduled four months.
Finance Minister Juan Carlos Echeverry said earlier this week the government will keep $1.4 billion in dividend payments from state oil company Ecopetrol SA overseas in a bid to ease the peso’s rally. The August dividend was left abroad and the same will be done with $700 million from the December dividend, he said.
In their letter to the government and central bank, the group of Colombian business associations including ANDI, the country’s biggest, asked that officials impose capital controls and increase dollar purchases in the currency market.
Banco de la Republica will likely seek to impose limits on borrowing abroad, according to Perez.
“The risk of capital controls is on everyone’s mind,” he said.
The yield on the nation’s benchmark 11 percent bonds due 2020 fell 2 basis points, or 0.02 percentage point, to 7.07 percent today, according to Colombia’s stock exchange. The bond’s price rose 0.164 centavo to 126.999 centavos per peso. The yield increased 9 basis points this week.