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Why The Colombian Peso Continues To Decline

Mar. 02, 2015 4:48 AM ETGXG, ICOL4 Comments
Andrew Sachais profile picture
Andrew Sachais
349 Followers

Summary

  • Economic growth in Colombia continues to slow.
  • Meanwhile, inflation measures are heating up.
  • The Colombian peso continues to decline against the U.S. dollar as policymakers sort through economic uncertainty.

The Colombian peso continues to fall as economic growth declines, alongside rising inflation and benchmark interest rates. Since August, the Colombian peso has fallen nearly 35% against the U.S. dollar, shown below.

Data provided by Trading View

Colombia's central bank left rates unchanged in February, even as economic growth declined in recent months due to falling commodity prices. The interest rate was left unchanged at 4.5%, having risen from a low near 3% when commodity prices began to tumble early last year. The rise in interest rates have been in an effort to deter capital outflows, and stop increasing inflation as imports become more expensive in an environment of a falling currency.

"Trade terms in Colombia decreased significantly in late 2014. In recent weeks, oil prices and several commodities which Colombia exports and imports have ceased their fall. Some of the decline in the terms of trade will be permanent and will be reflected in lower national income.

In February the risk premiums of Colombia and several countries in the region declined but remained at levels higher than the average recorded in 2014. So far this year, the information on the exchange rate shows that capital inflows, both direct and portfolio investment, remain dynamic," according to Reuters.

As was stated above, the falling price of commodities hurt exports in recent months, weighing on overall economic growth. In the third quarter, the economic growth figure came in at an annual pace of 4.2%, below the previous quarter's reading of 4.3%, as well as missing estimates for 4.3%. Since peaking in 2011, economic growth in Colombia has fallen from an 8% annual pace, to current levels, seen below. With export revenue expected to remain suppressed in coming quarters, economic growth could suffer.

"New information for the fourth quarter of 2014 suggests

This article was written by

Andrew Sachais profile picture
349 Followers
Author Bio: Andrew Sachais’ focus is on analyzing markets with global macro-based strategies. He is a former hedge fund trader and has written for TheStreet.com and was an economist for Minyanville. Sachais takes into consideration global equity, commodity, currency and debt markets, and is a recent graduate of Georgetown University, where he earned a degree in Economics. He currently runs an event-driven macro fund.

Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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