The Colombian peso was retreating against the dollar Thursday, spurred by a growing aversion to riskier emerging market assets, giving local authorities some breathing room to deal with the currency’s appreciation.
The peso on Thursday traded at COP1,771.6 to the dollar from COP1,767.5 a day earlier. It was the second straight day that the peso has weakened against the greenback. The retreat comes as the central bank is slated to hold a monetary policy meeting on Friday in which the peso’s appreciation is likely to be discussed by its seven-member board.
Munir Jalil, head of research at Citi’s Colombia unit, said that the central bank is unlikely to unveil any measures to tame the peso’s strength during the Friday meeting. “At this level they can still feel a bit comfortable,” Jalil said.
“Right now the peso is weakening because of the international factors,” Jalil said. “This is very good news for the government,” he added.
The government has used a battery of instruments to attempt to halt the peso’s surge this year. The efforts have concentrated mainly in buying dollars in the exchange market to mop up U.S. currency. The central bank has been buying $20 million daily in the spot market, a figure that some analysts have said should be doubled to have a stronger impact on the exchange rate.
Jalil, however, said that the central bank was likely to “keep that ammunition for when it’s really necessary.” For the government, Jalil said, COP1,750 to the dollar is the level where more forceful measures to curb the peso’s strength could be unveiled.
President Juan Manuel Santos said earlier this week that the government would continue with its intervention policies without giving further details.
Finance Minister Juan Carlos Echeverry warned during an interview on Tuesday that peso was nearing “a pain threshold” for the administration while adding that the government still wanted to continue steering away from capital controls, which limit foreign investment through taxes and other regulations.