Colombian Peso Falls to One-Week Low on Interest-Rate Outlook

Colombia’s peso fell to a one week low amid speculation the central bank will leave interest rates unchanged after inflation unexpectedly slowed in March.

The peso declined 0.5 percent to 1,793 per U.S. dollar at 10:15 a.m. in Bogotá, from 1,783.88 yesterday. 

Earlier it touched 1,794.26, its weakest level since March 30. The peso has jumped 8.2 percent this year.

“Traders are pricing in a prolonged pause in rates after the surprise in inflation and as inflation expectations drop,” said Daniel Escobar, head analyst at Global Securities brokerage in Bogota. “

That is helping the peso weaken as fewer hikes mean less incentives to bring in dollars.”

The currency has reached a “worrying” level, Finance Minister Juan Carlos Echeverry wrote in an April 8 opinion column published in El Tiempo newspaper.

Colombia needs to weigh a “strategy that is richer in objectives and instruments” that combines the inflation target with a “more intensive sterilized intervention,” Echeverry, who is also president of the central bank’s board, wrote.

Bank Purchases

The central bank has said it will purchase a minimum of $20 million daily in the spot market until at least Aug. 4 in a bid to stem the peso’s rally.

Colombian policy makers meeting last month were divided over the need to raise interest rates in the future to keep inflation in check, minutes of the meeting, published April 4, showed. 

The seven-member board voted unanimously on March 23 to keep the overnight rate unchanged at 5.25 percent, according to the minutes. 

Banco de la Republica has raised the benchmark rate nine times since February 2011, bringing it up from a record-low 3 percent. 

The next monetary policy meeting is scheduled for April 30.

Annual inflation slowed to 3.4 percent in March, the national statistics agency said in an April 4 report, down from 3.55 percent in February and less than the 3.63 percent median estimate. 

Banco de la Republica targets inflation between 2 percent and 4 percent this year.

The yield on Colombia’s 10 percent peso-denominated debt due in July 2.024 rose two basis points, or 0.02 percentage point, to 7.15 percent, according to the central bank. 

The price fell 0.188 centavo to 122.727 centavos per peso.