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Colombia's Peso Declines on Concern Economic Growth is Slowing

Colombia's Peso Declines on Concern Economic Growth Is Slowing

By Andrea Jaramillo and Drew Benson

July 10 (Bloomberg) -- Colombia's peso dropped to a one-week low amid signs growth in the South American country is slowing.

The peso weakened 1.1 percent to 1,749.3 per dollar at 3:49 p.m. from 1,729.55 yesterday, according to the Colombian foreign- exchange electronic transactions system, known as SET-FX.

Colombia's economy expanded 4.1 percent in the first quarter, less than half the 8.4 percent growth rate in the fourth quarter, according to the government. Inflation has quickened even as growth has weakened. The annual inflation rate climbed to 7.2 percent in June, the highest since August 2003.

``There's a lot of uncertainty in the market today,'' said Victor Manuel Velez, a foreign-exchange trader in Cali at Banco de Occidente SA. ``While there are signs the economy is decelerating, there's also concern the central bank will need to take extreme measures to control inflation.''

Banco de la Republica has raised the benchmark rate 3.75 percentage points in the past two years to a seven-year high of 9.75 percent to try to stem inflation. The bank is next scheduled to meet on July 25.

Colombia's peso bonds fell to their lowest since the securities were issued in July 2005 amid concern inflation will continue to quicken.

The yield on the benchmark 11 percent government bonds due July 2020 rose 3 basis points, or 0.03 percentage point, to 12.93 percent, according to Colombia's stock exchange. The bonds' price fell 0.149 centavo to 88.511 centavos per peso. Earlier, the price touched a record low of 87.949.

`Difficult and Traumatic'

``The market has been reacting to the fact the central bank didn't hike rates last month, even though inflation continues to rise,'' said Benito Berber, a strategist at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``The worry is the same will happen this time.''

Economists raised their median forecast for 2008 year-end inflation to 6.5 percent from 5.97 percent, according to a central bank survey released yesterday. That rate exceeds the central bank's 3.5 percent to 4.5 percent target range.

``The risk is that inflation expectations become unhinged, making convergence to the inflation target more difficult and traumatic,'' said Boris Segura, an economist at Morgan Stanley in New York.

An inflation survey released yesterday by Chile's central bank, in which economists lifted their 2008 year-end inflation forecast by 2 percentage points to 7.5 percent, helped fuel speculation that policy makers will lift their key rate after markets close today.

`More Aggressive'

The yield advantage and gains in the price of copper, the nation's biggest export, have helped fuel a 3.8 percent rally in the peso in the past 12 months.

``The expectation is that the central bank will be more aggressive than in the past few months,'' said Miguel Cardoso, head of economic research at BBVA Chile. ``Nor can it be too aggressive, given the lower economic growth we have seen recently.''

Twenty-four of the 25 economists surveyed by Bloomberg expect Banco Central de Chile to raise the 6.75 percent benchmark rate by at least a quarter-percentage point.

Cardoso forecasts the central bank will lift the key rate to 8 percent by year-end, with stronger growth in the second half helping the peso strengthen by as much as 4 percent.

Argentine Central Bank

Chile's peso rose 0.6 percent to 500.16 per dollar today, from 503.02 yesterday. The currency touched 498.29, its strongest level since June 20.

The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, called unidades de fomento, rose 2 basis points to 2.91 percent, according to Bloomberg composite prices.

Argentina's peso fell 0.1 percent to 3.017 per dollar from 3.013 on June 8. Markets were closed yesterday for a national holiday.

The central bank bought dollars today, helping push down the peso in a move that may mark a shift from a months-long policy of selling dollars to strengthen the peso, traders said. A central bank spokesman said information on the bank's transactions in the market today wasn't immediately available.

``It's still not clear'' if the central has changed tack, said Gustavo Quintana, a currency trader at Buenos Aires-based Lopez Leon Brokers.

Argentina's international reserves have fallen about $3 billion since the end of March as the central bank sold dollars.

The yield on Argentina's Bogar inflation-linked peso bonds due in February 2018 was little changed at 10.34 percent, according to Citigroup Inc.'s unit in Argentina.

Peru, Venezuela

In Peru, the sol fell 0.4 percent to 2.8145 per dollar from 2.8045 yesterday. The yield on the nation's 8.6 percent sol- denominated bonds due in August 2017 rose 20 basis points to 7.85 percent, according to Citigroup's unit in Peru.

Peru's central bank will increase its key lending rate a quarter percentage point to 6 percent today, according to 13 of 20 economists surveyed by Bloomberg. Three economists forecast an increase to 6.25 percent while four expect no change.

Venezuela's bolivar was little changed at 3.40 per dollar in the black market, traders said. Venezuela pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get approval from the government's Foreign Exchange Administration Commission to buy dollars at the official rate.

To contact the reporters on this story: Andrea Jaramillo in Bogota at ajaramillo1 at bloomberg.net; Drew Benson in Buenos Aires at Abenson9 at bloomberg.net

By gringoloid on Jul 10, 2008, 18:04 in Friendly Talkzone.

gringoloid says on Jul 10, 2008, 18:06:

This paragraph from the above article was most interesting. What extreme measures will be taken? Is this where the Colombian recession would begin?

``There's a lot of uncertainty in the market today,'' said Victor Manuel Velez, a foreign-exchange trader in Cali at Banco de Occidente SA. ``While there are signs the economy is decelerating, there's also concern the central bank will need to take extreme measures to control inflation.''

0 funny, 0 helpful.

tejasmarcos says on Jul 10, 2008, 18:24:

i can't see chit. el corral is still $12 bucks!

trying to walk a straight line on sour mash and cheap wine...

0 funny, 0 helpful.

romy says on Jul 10, 2008, 18:26:

that's the inflation that is talked about...
I'm wondering what is causing the slow-down though? Shouldn't the effect have been different with increased confidence?

0 funny, 0 helpful.

tejasmarcos says on Jul 10, 2008, 18:39:

inflation my eye. it is the exchange rate... atleast at el corral.

- can you say....CHUZO?

trying to walk a straight line on sour mash and cheap wine...

0 funny, 0 helpful.

BillBigD says on Jul 10, 2008, 19:38:

Pricing of food and gas are greatly increasing just like the states. Look at the Bond rates, which will probably increase on July 25th. But all is well

0 funny, 0 helpful.

Ctg Bound says on Sep 26, 2008, 09:12:

gringoloid,

So what growth Gringoloid:

Please give some Colombia & US GDP numbers for the years 2008, 2009, & 2010, like you claimed you were going to do on this thread:

http://poorbuthappy.com/colombia/post/usacolombian-recession-contestpa....

But never did, if you can't put the numbers up shut the **** up, as you are a waste of time.

0 funny, 0 helpful.