Latin America Currencies: Colombia Peso Slides as Crisis Builds

By Drew Benson

Oct. 7 (Bloomberg) -- Colombia's peso declined on concern the global credit crisis won't abate soon.

The central bank sold $180 million in dollar options and suspended a daily dollar purchase program in an effort to shore up the peso. It dropped 1.2 percent to 2,283 per dollar at 4 p.m. New York time, from 2,255.55 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. The peso touched 2,287.35 per dollar, its weakest point since December 2006.

The peso declined 4 percent yesterday, triggering the $180 million dollar option auction today, said a central bank spokeswoman. The program to buy $20 million a day has been suspended until further notice, the spokeswoman said by telephone from Bogota. The central bank reported later that it bought $440 million during September, bringing the total for the year to $2.3 billion.

Today's options auction aims ``to add some liquidity and keep the peso from weakening so much,'' said Daniel Arguelles, a senior foreign exchange trader at the Bogota-based brokerage Corredores Asociados. ``Still, the market remains very risk averse, and we're pretty much going tick by tick with whatever is going on in Brazil and with the stock indexes.''

Brazil's real declined 5.7 percent, while the Standard & Poor's 500 Index fell 4.8 percent.

``There is so much uncertainty with respect with global growth and the impact a slowdown will have on the region,'' said Aryam Vazquez, an emerging markets economist with Wells Fargo in New York. ``Latin America is going to get hit even though the fundamentals in the region remain fairly positive.''

Peru's Dollar Sales

The yield on Colombia's benchmark 11 percent bonds due July 2020 rose 4 basis points, or 0.04 percentage point, to 12.1 percent in New York, according to Colombia's stock exchange. The bonds' price slid 0.232 centavos to 93.170 centavos per peso.

Latin American central banks have pumped cash into interbank markets in a bid to temper the global credit freeze.

In Peru, the central bank sold $249 million in the currency market after selling $393 million yesterday. The sol dropped the most since March, declining 1.9 percent to 3.1055 per dollar after touching 3.11, its weakest point since Sept. 26, 2007.

Chile's peso slid 1.2 percent to 594.84 per dollar from 587.88 yesterday. The peso touched 595, its weakest point since December 2004. Chile's central bank has also canceled daily purchases, of $50 million of dollars, and instead began a swap program that aims to inject $2 billion into the system through four weekly auctions. The first of the auctions was held last week.

`Rebuilding Liquidity'

The yield for a basket of five-year peso bonds in inflation- linked currency units, known as unidades de fomento, rose 9 basis points to 3.18 percent, according to Bloomberg composite prices.

Argentina's peso slid 0.6 percent to 3.215 per dollar, from 3.197 yesterday, after touching 3.2190, its lowest point since January 2003.

``The central bank puts a priority on strengthening demand for pesos and rebuilding liquidity,'' central bank President Martin Redrado said during a speech in Buenos Aires. Yesterday the central bank raised interest rates on repurchase agreements by 75 basis points in a bid to make peso deposits more attractive. The bank raised the rate on one-day repos rose to 12.5 percent and to 14.75 percent for 60-day repos.

The yield on the country's inflation-linked peso bonds due in December 2033 was little changed at a record-high 12.31 percent, according to Citigroup Inc.'s unit in Argentina.

Venezuela's bolivar slid 3.2 percent to 4.65 per dollar in unregulated trading, traders said. The government pegs the bolivar at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get government approval to buy dollars at the official rate.

To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net