Colombia Peso Set to Drop as Rally Prompts Central Bank Concern

july 28 Colombia’s peso, the world’s best- performing currency in the past four months, will weaken by year-end as the central bank’s commitment to “carefully monitor” the rally discourages investors from betting on further gains, Barclays Plc and RBC Capital Markets said.
The peso has surged 25 percent against the dollar since March 27, the biggest gain among the 176 currencies tracked by Bloomberg, as a jump in oil, the country’s top export, and rising demand for higher-yielding assets lured international investment to Latin America’s fifth-largest economy.
Policy makers said July 24 they were “aware of the risks associated with the peso’s appreciation” after it strengthened more than they expected. Agriculture Minister Andres Fernandez and exporters such as coffee growers are urging Banco de la Republica to buy dollars to weaken the peso.
The central bank’s “verbal intervention will put an end to the peso’s appreciating trend,” said Jimena Zuniga, a Latin America economist at Barclays in New York. The comments “will cause some concern with investors,” she said.
Zuniga forecasts the peso will slide 5 percent to 2,100 per U.S. dollar by yearend, from 1,994.52 yesterday. Paul Biszko, an emerging-markets strategist with RBC Capital Markets in Toronto, predicts the peso will drop to as low as 2,250 in the third quarter and end the year at 2,150.
The central bank’s attempt to reverse the peso’s gains may fail as rising crude oil prices propel the currency further, said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. He forecasts the peso may rise to 1,850 by yearend.
Peso to Extend Rally
“Oil is higher, commodities are higher, risk appetite is coming back and people like emerging markets, so the Colombian peso and other emerging market currencies can see values go up toward the end of the year,” Thin said.
Crude oil has jumped 53 percent this year to .02 a barrel on the New York Mercantile Exchange. The peso fell 0.5 percent to 1,994.52 yesterday.
Rising political tension with neighboring Venezuela and Ecuador may also derail the Colombian’s peso rally, said Fernando Losada, an economist at Deutsche Bank Securities Inc. in New York.
Venezuelan President Hugo Chavez said July 23 his government may curb commercial ties with Colombia after President Alvaro Uribe announced plans to allow the U.S. to use its air bases for anti-narcotics combat missions. Venezuela is Colombia’s second-biggest trading partner.
‘Commercial War’
Ecuadorean President Rafael Correa this month imposed tariffs on Colombian goods including meat, clothing and machinery, saying the depreciation of the peso earlier this year hurt his country’s economy. Ecuador, Colombia’s third-largest trade partner, uses the U.S. dollar as its currency. Venezuela and Ecuador account for about 20 percent of Colombia’s exports, according to Deutsche Bank.
“The commercial war between Colombia and Ecuador has already started,” Losada said in comments sent by e-mail. If Chavez follows through on a threat to replace Colombian imports with those from other countries, “the impact on the peso could be important,” he said.
Deutsche Bank estimates the peso will weaken to 2,200 in six months, according to a report yesterday.

Source | Forex News | http://forexnews-4all.blogspot.com/2009/07/colombia-peso-set-to-drop-as-rally.html

Global Central Banks Brace For Liquidity Crunch, Friday, September 26, 2008 11:10:04 AM

Friday, the Federal Reserve and leading European central banks announced coordinated measures to address funding pressures. Central banks in Asia Pacific also took measures to boost liquidity.

The Fed along with the European Central Bank, the Bank of England and the Swiss National Bank provided U.S. dollar liquidity with a one-weak maturity. Reiterating that they will continue to work together, the central banks said they are ready to take additional measures as needed to deal with the ongoing pressures in the funding markets.

The latest liquidity boost from global central banks came following a breakdown of talks over a US0 billion rescue plan for the US financial system. Sentiment in financial markets also took a hit on the news of collapse of U.S. bank Washington Mutual. Late Thursday, JPMorgan Chase & Co. said that it has agreed to acquire all deposits and assets of Washington Mutual for about .9 billion, after the struggling company was seized by regulators in what is considered as the largest bank failure in U.S. history.

In a statement, the Fed said the Federal Open Market Committee authorized a billion increase in its temporary swap facility with the ECB and a billion increase in its facility with the SNB. These expanded facilities will support the provision of U.S. dollar liquidity in amounts of up to 0 billion by the ECB and up to billion by the SNB.

Together, these changes represent a billion addition to the 7 billion previously authorized swap deals with other central banks. Previously, the Fed had authorized swap lines with the Bank of Japan ( billion), the Bank of England ( billion), the Reserve Bank of Australia ( billion), the Bank of Canada ( billion), the Bank of Sweden ( billion), the National Bank of Denmark ( billion), and the Bank of Norway ( billion). The Fed said these arrangements have been authorized through January 30, 2009.

The actions were in response to the crisis at U.S. financial firms, which took excessive bets on mortgage-backed investments resulting in the write off of billions of dollars of assets. The troubled U. S. investment bank Lehman Brothers went bankrupt, while Merrill Lynch got sold to the Bank of America in a quickly-negotiated -billion transaction. Meanwhile, the U.S. government stepped in to save insurer AIG from sinking. The Fed extended an billion loan, essentially nationalizing the firm. Further, investment banks Goldman Sachs and Morgan Stanley converted themselves into regulated commercial banks.

In the latest move, the ECB decided to provide US dollar one-week funding over the quarter end to European banks, applying a variable rate tender procedure and with an intended volume of US billion. The bank received bids worth US.495 billion from 52 banks. The bank offered the funds at a marginal rate of 4.5%. In its overnight operations, the ECB lent US billion, reduced from an initial US billion, against a bid amount of US.38 billion from 33 bidders at a marginal rate of 2.25%.

The SNB allotted US.9 billion at a marginal interest rate of 1% in its one-week repo operation, which had twelve banks participating. In its overnight operation, the central bank allotted US billion against a bid amount of US.3 billion from 13 banks at a marginal rate of 1.82%.

The Bank of England said in a statement that it will increase the term of its existing operations to lend US dollar funds against collateral eligible in short-term repos and US Treasuries. Alongside an operation to lend funds overnight, the central bank will lend US billion of funds for one week today.

The UK central bank`s overnight dollar repo operation was US billion on Friday, reduced from US billion earlier, against a bid amount of US.36 billion. The cover ratio was 1.24 and weighted average accepted rate of 2.208%. In the one-week operation, the bank received US.65 billion worth bids and the cover ratio was 1.06%. The weighted average accepted rate was 2.991%.

The BoE added that Bank`s long-term repo operations against extended collateral, including mortgage securities, will for a period be held weekly and enlarged. The first such operation will be held on September 29. It will be an auction for GBP40 billion, for maturity to January 15, 2009.

Meanwhile, the Danish central bank extended the banks and mortgage credit institutes lending facilities given the tight liquidity conditions. The Danmarks Nationalbank said it will introduce a facility offering banks and institutes credit on the basis of their excess capital adequacy and will increases the number of assets accepted as collateral. These measures will come into effect on September 26. The central bank received bids worth US.8 billion against an offered amount of US billion in its US dollar auction.

Markets in Asia Pacific also received funds on Friday. Data from the Reserve Bank of Australia offered A6 million today in repo. Further, the Australian central bank reportedly said it offered US billion in its first US dollar repurchase operation. Further, the Australian government announced that it will invest A billion in two tranches in the domestic residential mortgage-backed securities to boost home lending.

Elsewhere in the region, the Bank of Japan injected 1.5 trillion yen or USbillion into its money markets.

The South Korean Finance Ministry announced that it would supply at least US billion into the swap market in the coming weeks in order to provide more liquidity. Choi Jong-ku, head of the ministry`s international financial bureau said the central bank would continue to supply dollars whenever necessary.

Source | Forex News | http://forexfx-news.blogspot.com/2008/09/global-central-banks-brace-for.html