Colombia: Colombian peso recovers partially from August's multi-year low in September
October 7, 2015
The Colombian peso (COP) has been depreciating rapidly since the second half of May 2015. It reached a multi-year low of 3,262 COP per USD on 26 August amid significant volatility in emerging markets following the surprise depreciation of the Chinese yuan on 24 August. Since then, the currency regained some ground, although the pace is tumultuous, with major ups and downs. On 7 October, the currency reached 2,916 COP per USD, which was its strongest value in about two months. The reading represented a 7.2% appreciation over the value tallied on the same day of the previous month, but was 43.8% weaker compared to the same day of last year.
The peso has followed a largely depreciative trend since the second half of 2014, with the exception of a short but sharp appreciation in the beginning of 2015 and the current significant appreciation that started at the very end of August. This trend has resulted mostly from the persisting low oil prices that are weighing on Colombia’s growth prospects. Oil accounts for over 50% of Colombia’s exports and about 20% of the government budget comes from oil revenues. The current appreciation can be interpreted as an adjustment to the overreaction of markets as the recent extreme volatility in China’s stock market settled down. Although, uncertainty regarding Chinese economy in general remains. In addition, better-than-expected Q2 GDP data as well as the Central Bank’s first rate hike in over a year, that occurred on 25 September, played a role in the recent appreciation. Finally, rising expectations that the Federal Reserve’s rate hike will be delayed for a few more months has eased upward pressures on the USD.
Author: Eric Denis , Economist