Latin American Currencies: Colombian Peso Drops to One-Year Low

By Andrea Jaramillo

Sept. 17 (Bloomberg) -- Colombia's peso declined to a one- year low as concern credit market losses will deepen depressed demand for higher-yielding, emerging-market assets.

``Latin American currencies are adjusting to the continued uneasiness in the market,'' said Benito Berber, a strategist at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.

The currency slid 2.1 percent to 2,148 per dollar at 11:45 a.m. in New York, from 2,104 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. It earlier touched 2,149.50, the weakest level since Sept. 18, 2007, the day the Federal Reserve began cutting its target lending rate from 5.25 percent to contain the credit market crisis.

The Colombian peso has plunged 4.5 percent this week following the record bankruptcy filing by Lehman Brothers Holdings Inc. The Fed's $85 billion bailout of insurer American International Group Inc. late yesterday failed to ease risk aversion, according to Berber.

The peso has also weakened as crude oil fell 35 percent from a record $147.27 a barrel reached on July 11. Oil is the biggest source of Colombian export revenue, accounting for about 25 percent of sales abroad. Crude oil for October delivery rose for the first time in three days today, increasing to $92.65 a barrel on the New York Mercantile Exchange.

Peso `Vulnerable'

``The Colombian peso is among the most vulnerable currencies in the region because of its dependence on oil and the fact that it's not investment-grade,'' Berber said.

Colombia's foreign debt is rated BB+, one level below investment grade, by Standard & Poor's and Fitch Ratings. Moody's Investors Service in June raised Colombia to Ba1, also one grade below investment quality.

Earlier this year, S&P and Fitch boosted Brazil's and Peru's long-term foreign currency debt to BBB-, the lowest investment-grade rating.

Oil prices have an impact on demand for Colombian exports to Venezuela, the nation's second-biggest trade partner after the U.S., Berber and colleague Flavia Cattan-Naslausky wrote in an RBS report today.

``When oil prices are low, this decreases Venezuela's ability to buy goods from Colombia,'' the strategists wrote. Oil accounts for about 90 percent of Venezuela's exports.

The yield on Colombia's benchmark 11 percent bonds due in July 2020 rose 23 basis points, or 0.23 percentage point, to 12 percent, according to Colombia's stock exchange. The bond's price plunged 1.367 centavo to 93.763 centavos per peso.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net