Colombia: Colombian peso tumbles following smaller-than-expected rate hike and oil prices slump
December 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. After regaining some ground, the currency reached 2,800 COP per USD on 3 November, its strongest value since July, thanks to a surprise 0.50% rate hike of the Central Bank (BanRep) and the announcement of a system of auctions to stabilize the currency. Since then, the currency has been depreciating rapidly. On 3 December, the currency was trading at 3,162 COP per USD. The reading represented a 12.9% depreciation over the value tallied on the same day of the previous month and was 38.2% weaker compared to the same day of last year.
The most recent depreciation came amid a smaller-than-expected 0.25% rate hike of BanRep on 27 November and a plunge in oil prices. The depreciative trend observed since the second half of 2014 has resulted mostly from the persisting low oil prices that are weighing on Colombia’s growth prospects. Indeed, oil accounts for around 40% of Colombia’s exports and about 20% of the government budget comes from oil revenues. Furthermore, increased probability of an imminent rate hike by the Federal Reserve has lately been putting additional pressure on the currency.
Author: Eric Denis , Economist