Colombia’s peso on Tuesday rose near a two-year high on bets increased dollar inflows will extend gains in the local currency.
The peso jumped 0.9 percent to 1,808.65 per U.S. dollar at 11:49 a.m. New York time, from 1,824.50 Monday. It touched 1,797.35 on Aug. 12, its strongest level since Aug. 8, 2008. Colombian markets were closed Monday for a national holiday.
The Colombian currency dropped 1.1 percent last week, its biggest decline since the period ended May 7, after President Juan Manuel Santos said the central bank is studying measures to ease the peso’s “worrisome” rally. Banco de la Republica may announce measures to ease the peso’s gains during the Aug. 20 monetary policy meeting, according to Felipe Campos, head analyst at Bogota-based brokerage Alianza Valores.
“Dollar inflows from foreign direct investment, the government, and to a smaller extent from loans abroad, are all helping the peso strengthen,” said Campos. “Whatever measures the central bank takes will only help weaken the peso temporarily.”
Santos met with policy makers Aug. 12 after urging them in an Aug. 11 speech to be “more creative, more bold” in stemming gains in the currency. While he declined to say what measures were discussed, he said the central bank is studying the issue.
Santos’s comments before last week’s meeting that he “will try and convince” the central bank’s board to ease gains in the peso echo former President Alvaro Uribe’s calls for the central bank to find a “solution” to curb the rally, which he said caused exporters to cut jobs. Santos said an independent central bank is important and it’s also key for the bank and the government to maintain “a dialogue and permanent collaboration.”
Campos predicts the central bank will announce daily dollar purchases of as much as $50 million to ease the peso’s rally. The currency has jumped 13 percent this year, the best performance among world currencies tracked by Bloomberg.
The central bank purchased $20 million a day between March 3 and June 30 to curb a rally policy makers said left the peso “misaligned.”
“In order to convince the market, the central bank will need to announce more than the previous $20 million since that didn’t help reverse the strengthening trend,” said Campos.
Policy makers may decide to restart daily dollar purchases that expired in June, or boost coordination with the Treasury to moderate the pace of dollar sales, RBS Latin America currency strategist Flavia Cattan-Naslausky wrote in a note to clients yesterday. The central bank is unlikely to cut the benchmark interest rate, Cattan-Naslausky wrote.
The yield on the benchmark 11 percent bonds due 2020 fell seven basis points, or 0.07 percentage point, to 7.26 percent, according to Colombia’s stock exchange. The bond’s price rose 0.574 centavo to 125.845 centavos per peso. (Andrea Jaramillo / Bloomberg)