Colombian peso jumps to two month high on rising investment flows

Colombia’s peso rose to a two month high amid increasing investment flows into the South American nation.

The peso advanced 0.1 percent to 1,758.73 per dollar at 11:43 a.m. New York time, from 1,760.90 yesterday.

Earlier it touched 1,756.50, the strongest level since May 9.

The peso has gained 0.1 percent so far this week and 3.3 percent in the past three months, the best performance among 25 emerging market currencies.

“Significant flows are coming into Colombia,” said Daniel Lozano, an analyst at Serfinco SA brokerage in Bogota.

“There’s strong appetite from foreign investors in having exposure to Colombia, given positive fundamentals such as growth and controlled inflation.”

Foreign investment into stocks and bonds jumped eight fold to $841 million in the first five months of 2011 compared to a year earlier, according to trade balance figures from the central bank. 

Foreign direct investment jumped to $5.75 billion in the same period, with 86 percent going into oil and mining, according to the central bank.

That compares to $3.68 billion in the first five months of 2010.

Colombia’s central bank will likely discuss further currency measures in the July 29 monetary policy meeting, according to Lozano.

Currency Measures

The peso has been strengthening “at a fast pace,” said Lozano. “More measures are a possibility.”

In a bid to ease the peso’s rally, Finance Minister Juan Carlos Echeverry said in april that the government would create an overseas fund with as much as $1.2 billion from dollars bought in the local market through the end of 2011, and forgo repatriating funds from abroad for the rest of the year.

Since Sept. 15, the central bank has bought a minimum of $20 million daily in the currency market, and plans to keep up the purchases until at least Sept. 30.

Banco de la Republica may seek to impose limits on foreign borrowing, said Lozano.

In minutes published last week of its June 17 monetary policy meeting, the central bank said it discussed the peso’s appreciation and that one board member called on the 25 basis point increase in the overnight lending rate to 4.25 percent to be the last in order to avoid widening the difference between Colombian and U.S. rates.

The rise in the rate differential has led to an “alarming” increase in overseas borrowing, the board member said, according to the minutes.

Overseas loans jumped to $3.9 billion in the first five months of the year, up from $2 billion a year earlier, according to the central bank.

The yield on Colombia’s 10 percent bonds due July 2024 rose five basis points, or 0.05 percentage point, to 7.75 percent, according to the stock exchange.

The bond’s price declined 0.424 centavo to 118.050 centavos per peso.