The Colombian peso

Colombia Peso Strengthens On Expectations Of Rate Cut In US

By Inti Landauro, Dow Jones Newswires

Wednesday, September 12, 2007

BOGOTA (Dow Jones)--The Colombian peso closed stronger Tuesday on investors' expectations the U.S. Federal Reserve may cut interest rates during its next monetary policy meeting Sept. 18.

The peso closed at 2,189 Colombian pesos to the dollar from COP2,198.75 Monday. Monday's close was the weakest level since March 30.

"There was optimism in the market today as there is talks about a possible rate cut by the U.S. Federal Reserve," said Arnoldo Casas, a debt strategist with local brokerage Promotora Bursatil SA.

Lower rates in the U.S. would make Colombian assets more attractive compared with assets in the U.S.

"It's a game of expectations," Casas said. "They all expect the peso to weaken, but they don't take into account the real flow of currency related to foreign direct investment," he added.

If the Fed cuts its rate, the peso might strengthen back to COP2,084, while if the Fed doesn't, the peso will probably slide further to COP2,160, Casas said.

As the peso strengthened, the yield on the Colombian benchmark 2020 bond fell to 10.577% from 10.613%.

Meanwhile, on the stock market, the IGBC index fell 0.1% to 10,618.76 points.

The most-traded stock was financial holding Suramericana de Inversiones SA (SURAMINV.BO), which fell 1.1% to COP18,700, while COP7.9 billion worth of shares changed hands.

-By Inti Landauro, Dow Jones Newswires; 57-1-600 19 80; colombia@dowjones.com