(Bloomberg) The Colombian peso weakens and swap rates fall after the central bank surprised with a rate increase of only one percentage point. Chile's economic activity, for its part, was lower than expected, reinforcing the moderate stance adopted this week by the monetary authority.
Colombia's central bank joined Chile and Brazil in taking a more prudent approach to inflation, fearing that steeper rate hikes could be more harmful than beneficial to the economy. The bank raised its key rate by a percentage point to 5%. Five of the seven board members supported the move, while two were in favor of a larger increase of 1.5 percentage points. None of the 24 analysts surveyed by Bloomberg expected such a result, with an average estimate that the rate would stand at 5.50%.
The peso fell 0.4% to 3,777 per dollar, making it the worst performing currency in Latin America, even after cutting part of the losses observed at the opening. Two-year IBR rates fell by 45 basis points on Friday, accumulating a drop in the week of 130 basis points, as traders had prepared for a more moderate central bank after the Chilean monetary authority also opted for a less aggressive rate hike on Wednesday.
Before the decision, the short part of the swap curve predicted that the benchmark rate would exceed 9% in six months, meaning that the central bank would have to make a further increase of 400 basis points. Traders are likely to continue to cut that premium in the coming sessions.
The Chilean peso, for its part, barely changed after the currency performed less than its peers on Thursday following the decision of the central bank. The year-to-date high of 771.89 to the dollar, recorded earlier this week, is now considered the most immediate technical level to watch.
Chile's economic activity index rose 6.8% year-on-year in February, lower than the estimate of 8% and the 9% increase in the previous month. Weaker-than-expected figures support the central bank's view that policy adjustment takes longer to produce its effects. The data is in addition to the retail sales and industrial production figures announced on Thursday, which were well below expectations.
The Peruvian sun follows the positive sentiment observed in most Latin American currencies and appreciated 0.5% against the dollar. The currency reached a new year-to-date high at the beginning of the session of 3.65 to the dollar. The next major key level is close to 3.59 per dollar, last seen in April 2021.
(Some of the information comes from FX traders familiar with the transactions who asked not to be identified because they are not allowed to speak publicly.)
Original Note:
COP Bucks Regional Trend, Falls on Rate Decision: Inside Andes
Davison Santana is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended to be investment advice.
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