Colombia: Colombian peso spikes following unexpectedly large rate hike and FX intervention
November 3, 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 3 November, the currency reached 2,800 COP per USD, which was its strongest value since July. The reading represented a 7.2% appreciation over the value tallied on the same day of the previous month, but was 35.7% weaker compared to the same day of last year.
The most recent appreciation came amid a surprise 0.50% rate hike and the Central Bank’s (BanRep) announcement on 30 October of a system of auctions to stabilize the currency. This decision followed better-than-expected data in Q2 and expectations of solid growth in Q3, which played a role in the peso’s appreciation as well. This renewed appreciative trend 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.
Author: Eric Denis , Economist