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Colombia’s Presiden Urges Central Bank to Boost Reserves, Weaken Peso

(Reuters) – Colombia’s central bank should increase international reserves and intervene more “aggressively” in the currency market to weaken the peso, President Juan Manuel Santos said on Wednesday.

Santos suggested during an “informal” meeting this week with the bank’s board that there was room to accumulate between $8 billion and $10 billion more in foreign reserves to help weaken the peso, which is the world’s strongest-gaining currency.

“I told them, look at the situation, if you analyze how much we have in reserves, it’s worth increasing the level, that is, intervene more strongly in the market, buy dollars and that would impact the exchange rate,” Santos told reporters.

“The bank has said, that generates losses for us, the central bank. We said to them, it doesn’t matter, we’ll pay the losses out of the national budget,” he said in Medellin.

The peso should be closer to 2,000 than 1,800 versus the dollar, he said. It closed at 1,793.55 on Wednesday.

Santos – who has come out frequently in the past with advice to the central bank – stressed that these were only suggestions.

Colombia has been battling a strengthening peso that has damaged competitiveness for exports – the country has attracted record foreign investment in the past decade as a military offensive against rebels makes it safer to do business.

The influx of dollars, coupled with attractive yields compared with near-zero interest rates in developed nations, has bolstered the value of the peso 8.25 percent so far this year.

Exporters such as flower and coffee growers have suffered from a strong currency because they pay costs in pesos but receive dollars for their sales.

The monetary authority is currently purchasing at least $20 million a day on the spot market until early November in a bid to ease currency gains. Net reserves reached $33 billion through April, according to its website.

The central bank will hold its monetary policy meeting on Friday to decide whether to alter the overnight lending rate from 5.25 percent. It may also decide to extend its dollar purchase program beyond November.

In the year through May, the central bank bought $1.58 billion through auctions. If it continues to buy at the pace of about $400 million monthly until the November deadline, it will have accrued nearly $2 billion more in reserves, according to Reuters calculations.

Written by Rico

Rico

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