Colombia: Colombian peso nosedives to record low in March, prompting response from authorities
The Colombian peso dived sharply in early March amid the rapid spread of the coronavirus pandemic and the significant drop in oil prices. On 13 March, the peso hit an all-time low and traded at 4,031 per USD, marking a 16.2% depreciation over the same day a month prior. The peso was also down 18.5% year-to-date and 22.0% year-on-year.
The peso tumbled in recent weeks as fears of the economic impact of the pandemic has rattled stock markets, hampering investor demand for emerging-market assets. The declaration of the coronavirus as a global pandemic due to the rapid spread of the virus outside China, coupled with the U.S. ban on travel from Europe, has increased concerns the virus will derail global growth and sparked a flight to safe-haven assets. Exacerbating matters, oil prices crashed after Saudi Arabia launched a price war against Russia on 8 March, sparking a supply shock at a point when the coronavirus outbreak was already significantly weighing on global oil demand. Given crude exports account for 40% of total exports and 10% of central government fiscal revenue, the slump in prices is bound to hit the economy as well as government finances.
In light of the recent market turmoil, the Board of Directors of the Central Bank held an emergency session with the minister of finance on 12 March and announced measures to provide additional liquidity to the financial system, including a form of exchange-rate hedging through the establishment of an auction of non-deliverable forwards worth up to USD 1 billion to facilitate trading in dollars. Moreover, it also increased the allotment of auctions through which it extends loans to the financial system to USD 4.4 billion from USD 2.3 billion, while also expanding the range of securities accepted by the Bank as loan guarantees.
Looking ahead, the increasing uncertainty related to the coronavirus pandemic and global oil production bodes ill for the peso in the short-term. Indeed, the peso is seen losing further ground as the country’s external position will remain fragile.