Colombian Peso Falls as Traders Scale Back Rate-Increase Bets

By Drew Benson

July 24 (Bloomberg) -- Colombia's peso fell as some traders scaled back bets that the central bank will raise the benchmark lending rate for the first time in five months tomorrow.

The peso was slid 0.5 percent to 1,781 per dollar at 4:30 p.m. in New York, from 1,772.95 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. Today's decline came after a three-day, 1.7 percent rally fueled by speculation the bank will raise rates.

The decision ``is the driver in the market,'' said David Santos, a senior analyst with Bogota-based brokerage Serfinco SA. ``There is uncertainty'' because economists are divided on whether central bankers will increase rates, he said.

Banco de la Republica will boost the overnight lending rate a quarter-percentage point to 10 percent to curb inflation, according to 17 of 38 economists surveyed by Bloomberg News. The rest predict no change in rates.

The central bank is slated to announce its decision on rates after midday tomorrow.

Annual inflation climbed to a five-year high of 7.2 percent in June. The rate will rise further to 7.5 percent in July, according to the median forecast of 16 economists surveyed by Bloomberg. The National Statistics Agency is to release the data on Aug. 1.

The yield on Colombia's benchmark 11 percent bonds due July 2020 slid 2 basis points, or 0.02 percentage point, to 12.68 percent, according to Colombia's stock exchange. The bonds' price rose 0.13 centavo to 89.924 centavos per peso.

Deputy Finance Minister Juan Pablo Zarate said on July 21 that the government will cut spending and auction less peso debt than originally anticipated this year.

Chilean Rates

Officials plan to trim local debt auctions this year to 10.5 trillion pesos ($6 billion) from 12 trillion pesos while reducing the budget deficit target to 1 percent of gross domestic product from 1.4 percent of GDP.

Chile's peso strengthened as oil prices came off of a seven- week low that had damped expectations on central bank interest- rate increases.

Banco Central de Chile on July 10 raised its key rate a half-percentage point to 7.25 percent, a nine-year high. Policy makers next meet Aug. 14.

The central bank will likely lift the rate by another 25 basis points at that time, said Rodrigo Aravena, head of economic research at Banchile Inversiones in Santiago. Monthly inflation ``would have to be above 1 percent for it to raise it by 50 basis points,'' Aravena said. That's an unlikely scenario because inflation since the last central bank meeting ``has eased, basically on the decline in oil prices,'' he said.

Oil

The peso rose 0.5 percent to 492.84 per dollar, from 495.10 yesterday.

Crude oil for September delivery rose 0.8 percent to $125.25 a barrel on the New York Mercantile Exchange, from a low of $124.44 yesterday. Futures have tumbled from a record $147.27 on July 11.

The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, called unidades de fomento, rose 3 basis points to 2.92 percent, according to Bloomberg composite prices.

Banco Central de Chile will sell $1 billion worth of two-, five- and 10-year inflation-linked bonds between Aug. 9 and Oct. 8, the bank said in a statement last week. For the two-month period, the bank won't sell fixed-rate bonds, it said.

The central bank has bought $50 million daily in the currency market since April 14 and has said it will purchase as much as $8 billion this year in an effort to weaken the peso and bolster exports.

Peru, Argentina

In Peru, the sol advanced 0.04 percent to 2.8310 per dollar from 2.832 yesterday. The yield on the nation's 8.6 percent sol- denominated bonds due in August 2017 was unchanged at 7.7 percent, according to Citigroup Inc.'s unit in Peru.

Argentina's peso was little changed at 3.0165 per dollar from 3.017 yesterday. The yield on the country's inflation-linked peso bonds due in December 2033 rose 20 basis points to 9.72 percent, according to Citigroup's local unit.

Venezuelan markets were closed today for a national holiday.

To contact the reporter on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net