Colombia’s peso closed trading down 2.56 percent versus the dollar on Tuesday on speculation the government could adopt capital control measures similar to an investment levy announced this week by Brazil.
Brazil on Monday said it would impose a 2 percent financial transactions tax on foreign investments in Brazilian stocks and fixed-income securities in a move to stop the country’s real currency from strengthening further.
The peso on Tuesday weakened to 1,920.45 from Monday’s close of 1.872,6 pesos against the greenback.
Analysts said local demand for the dollar rose as investors looked to mitigate risks three days before the central bank meets to evaluate possible measures to slow the rise of the peso, which has gained 18.2 percent over the last 12 months.
Colombia could implement measures such as dollar purchases or a cut in the central bank’s benchmark interest rate. But the finance minister said last week the government was not considering capital controls for now.
“Now Brazil has taken measures, that has a set a precedent to be more creative. This is about uncertainty over what the bank or the government could come out with,” said Camilo Perez, chief economist at Banco de Bogota.
The uncertainty over possible measures also spread to the secondary market in local public debt, where the yield on the benchmark July 2020 TES bonds was at 8.659 percent compared with Monday’s close of 8.575 percent.
The government last week said it would halt repatriation of dollars it holds overseas for the rest of the year and would keep $500 million in dividends from state oil company Ecopetrol overseas to help put the brakes on appreciation.
Colombia imposed capital controls on short-term foreign investments such as those in local TES bonds to help ward off the impact of the global crisis, but lifted the restrictions in September and October 2008. (Reuters)
