Colombia’s peso fell to a four-month low as concern Ireland may need to tap international bailout funds hurt appetite for higher-yielding emerging-market assets.
The peso slid 0.9 percent to 1,883.30 per U.S. dollar at 3:38 p.m. New York time, its weakest close since July 8. The decline pared the peso’s gain this year to 8.5 percent, still the best performance among the six most-traded Latin American currencies.
“Things in Europe are complicated and local markets are getting hit because of increased risk aversion,” said Daniel Velandia, head analyst at Bogota-based brokerage Correval SA.
Ireland is in talks with European Union and International Monetary Fund officials about a bailout that would shore up the state’s finances and allow it to inject capital into the country’s banks, said a European official with direct knowledge of the talks. Ireland says it’s fully funded into mid-2011.
Central bank and government measures to ease gains in the peso have helped stem the local currency’s rally, according to Velandia.
Banco de la Republica began on Sept. 15 purchasing a minimum of $20 million a day through auctions which will last until “at least” March 15. Finance Minister Juan Carlos Echeverry said last month that the government will eliminate most tax exemptions on overseas borrowing and keep $1.5 billion abroad “at least for the first months of 2011” to reduce the inflow of dollars.
‘Willing to Fight’
“The government historically has been a big player in the market,” Velandia said. “The fact that it isn’t selling dollars in the market at the moment is helping place a” floor on the peso, he said.
Echeverry told reporters today in a broadcast on the presidential website that the government “doesn’t rule out” capital controls. He made the comments as part of presentations following President Juan Manuel Santos’s 100 days in office.
“So far we’ve taken structural measures but we don’t rule anything out,” Echeverry said. “Markets should know that we are willing to fight to avoid harmful effects on the export sector from the actions of speculators.”
Echeverry also said the government wouldn’t sell foreign bonds this year to begin funding the 2011 budget, which is known as “pre-financing.” The government plans to sell $2.24 billion in bonds abroad next year as part of its plans to obtain $3.7 billion in external financing.
The yield on the nation’s benchmark 11 percent bonds due 2020 rose eight basis points basis points, or 0.08 percentage point, to 7.41 percent, according to Colombia’s stock exchange. The bond’s price slipped 0.610 centavo to 124.158 centavos per peso. (Andrea Jaramillo / Bloomberg)
