Colombia Boosts Dollar Buying to Curb Biggest Currency Rally

Posted on Apr 22 2014 - 6:43am by Rico

COLOMBIA BUSINESS NEWS – (Bloomberg) Colombia’s central bank is stepping up its pace of dollar purchases to curb the biggest currency rally in emerging markets.

dollar750The bank bought US$19 million yesterday, up from an average of US$10.5 million between April 1 and April 16. Finance Minister Mauricio Cardenas said the increase of about 80 percent is a response to the peso’s recent strength.

“As the peso has strengthened, we’ve taken the decision to accelerate the pace of buying within the framework that we’d already established,” Cardenas told reporters in Bogota. “This will allow us to counteract the trend of the dollar in recent days.”

The peso has rallied since JP Morgan Chase & Co. said last month that it could more than double the weighting of the nation’s local-currency bonds in two of its indexes, and as signs of faster growth led traders to step up bets on interest rate increases. The peso has strengthened 2.7 percent this month, the biggest gain among 24 major emerging market currencies tracked by Bloomberg.

The central bank’s policy committee pledged at its March meeting to buy as much as $1 billion from April to June. This ceiling hasn’t changed, Cardenas said.

“We were buying at a very slow pace,” Cardenas said. “We’re going to accelerate the pace to have more impact on the exchange rate. We made little use of the limit.”

Last year, Cardenas repeatedly described the peso’s strength as “the mother of all problems” for exporters, while President Juan Manuel Santos said that Colombia should use “all the weapons in its arsenal” to curb its strength. The currency then fell to its weakest level since 2009 in February, as the Federal Reserve curbs asset purchases that have fueled demand for higher-yielding assets in emerging markets.

Industrial output, retail sales and unemployment data published over the last month by the national statistics agency all beat expectations, while annual inflation accelerated to 2.51 percent in March, its fastest pace in 16 months.

Colombia will hold its benchmark interest rate at 3.25 percent at its April 25 policy meeting, and raise it to 3.5 percent in June, according to the central bank’s most recent survey of economists.