Colombia’s central bank should stop its program of daily dollar purchases at the end of this month as the peso weakens toward a level the Andean nation “can live with,” President Juan Manuel Santos said.
Colombia kept its key interest rate close to a record low for a fifth month as industry contracts and strikes and protests threaten to disrupt production further. Some policy makers voted to cut borrowing costs.
Growing bets Colombia will miss its inflation target for the first time since 2008 are a signal to Citigroup Inc. and Corp. Financiera Colombiana SA that traders are overestimating how much floods will push up food prices.
Colombia’s peso bonds dropped, pushing yields to their highest level this month, on speculation the government may issue more local debt to finance increased spending after higher-than-average rainfall left thousands homeless and destroyed roads in the South American country.
Betting on gains in the Colombian peso has proven to be the most profitable risk-adjusted trade in the foreign-exchange market this year as policy makers raise interest rates to keep inflation in check.
Colombia’s peso rose, posting its biggest weekly jump since January, amid rising investment flows into the South American nation and as optimism Greece will avoid a default lifted demand for higher-yielding emerging-market currencies.
Colombia’s central bank raised borrowing costs for a second straight month in a bid to stabilize the fastest economic growth since 2006 and slow inflation toward the mid-point of policy makers’ target amid a surge in lending.