Colombia should learn from its neighbors and take “more aggressive” action to stem the world’s biggest currency rally, as trading partners seek to gain a competitive edge by weakening their exchange rates, Finance Minister Juan Carlos Echeverry said.

Colombia has been less successful than other countries in the region at curbing currency gains, Echeverry told lawmakers in Bogota yesterday. Their experience shows that more central bank intervention in currency markets is compatible with low and stable inflation, he said.

“Since about March, the behavior of our currency has been less than satisfactory,” Echeverry said. “Our neighbors are pursuing currency policies that are perhaps more effective than ours.”

The peso has appreciated 9 percent against the dollar this year, the biggest gainer of all 170 currencies tracked by Bloomberg, leading to complaints from exporters such as flower growers and coffee farmers. The Brazilian real weakened 9.8 percent over the same period, as President Dilma Rousseff’s government stepped up measures to protect her country from what she called a “monetary tsunami” caused by stimulus policies in rich nations.

Echeverry said he remains opposed to capital controls of the kind employed by Brazil, and said Colombia should instead study Peru, whose currency has gained 0.6 percent against the dollar this year. Colombia should buy dollars more aggressively and follow the purchases with immediate “sterilization” in which the central bank sells bonds to mop up the extra liquidity this creates, he said.
’Excessive’ Appreciation

The peso’s “excessive” appreciation is due to monetary policy in the U.S. that is “lax almost to the point of irresponsibility”, said Echeverry, who once worked as a teaching assistant to Federal Reserve Chairman Ben S. Bernanke at New York University.

“Brazil is printing money, the United States is printing money,” Echeverry said. “If you don’t fight this currency war, you suffer.”

The central bank bought $420 million in the currency market in auctions last month, while the government is keeping abroad dividends from state-run oil company Ecopetrol SA to avoid strengthening the peso even further.

Colombia’s economy grew 5.9 percent last year, faster than the Brazil and Mexico, and trailing Chile and Peru. There are signs that the economy may now be cooling, after the central bank, of which Echeverry is a board member, raised interest rates nine times since the start of 2011 to damp demand powered by credit growth and record foreign investment.

Industrial output fell in March from a year earlier, the first year-on-year contraction since 2009. Urban unemployment rose to 11.4 percent in April, higher than all 18 forecasts of analysts surveyed by Bloomberg.