Colombia’s currency weakened to 1,926 pesos to the dollar this week before sliding back down to 1,915 on Friday, according to currency reports.
After struggling to get the peso under control, Colombia’s Finance Minister Mauricio Cardenas has signaled that he will continue policy measures designed to keep the peso between 1,900 and 1,950 pesos to the dollar, what he and the Santos’ government consider to be the ideal exchange rate.
The peso reached 1,940 in July, striking a 12-month high against the dollar after fears of U.S. Federal Reserve stimulus tapering triggered investors into a global emerging market asset sell-off.
In 2012, the Colombian peso experienced a strong rally, strengthening to 1,763 pesos to the dollar, making it one of the strongest gaining currencies in Latin America last year.
The strong currency however, has hurt farmers and manufacturers that rely on exports. A strong peso has forced their products to be less price competitive in international markets.
Industrials have been hit particularly hard. After showing a contraction in 6 out of the last 8 months, confidence has waned.
MORE: Colombia’s industrial confidence plunges
To curb the rally, the government held back on $2.8 billion dollars in foreign bond sales for 2013 after seeing that the peso was hurting other sectors of the economy. According to Bloomberg, Colombia planned to reduce bond sales to $600 million after a first wave of $1 billion bonds were sold in January.
More recently, the government decided to hold off bond sales again, at least until the peso crested 1,900 to the dollar. The government plans to keep its interest rates low until 1Q 2014 in order to stimulate an economy it considers to be performing below potential.
Furthermore, during a May policy meeting, the government promised to step up its program of daily dollar purchases, according to Bloomberg.
The central bank said it would purchase dollars at a rate of at least $2.5 billion dollars per day through September in an effort to keep the peso down.
Sources
Currency Data, USDCOP (Google Finance)
Central Banker sees rates on hold through 1Q 2014 (Bloomberg)
Colombia to wait for peso weaker than 1,900 to sell dollar bonds (Bloomberg)