Colombia's peso rose to an eight- month high after the central bank unexpectedly raised its benchmark lending rate to 9.75 percent, buoying the allure of the country's fixed-income assets.

The quarter-point increase, implemented on Feb. 22 in an effort to stem inflation, widened the gap between Colombian and U.S. benchmark rates to 6.75 percentage points. That rate differential and an increase in exports, fueled by higher oil and coal prices, have helped drive up the peso 7 percent this year, the second-biggest gain after the Czech koruna among 26 emerging market currencies tracked by Bloomberg.
“It's not clear until when the central bank will lift rates; inflation remains high” said David Rivera, an analyst at Banco de Bogota SA, the country's second-biggest bank. “Commodity prices continue to favor inflows into Colombia and things are calmer in external markets.”
The peso advanced 0.6 percent to 1,885.95 per dollar at 2:32 p.m. in New York, according to the Colombian foreign- exchange electronic transactions system, known as SET-FX. The currency touched 1,880.55 per dollar, its strongest level since June 6.
The peso's strengthening “trend is likely to be reinforced by the rather hawkish central bank stance,” Igor Arsenin and Carola Sandy wrote in a Credit Suisse Group report today.
Crude oil prices are up 61 percent from a year ago. Oil accounts for about 20 percent of Colombia's exports.
Inflation expectations
The median 2008 inflation forecast rose to 4.85 percent this month from 4.62 percent the prior month, according to the median economist forecast in a central bank survey. The annual inflation rate jumped to 6 percent in January, exceeding the central bank's 3.5 percent to 4.5 percent annual target range.
The yield on Colombia's benchmark 11 percent bonds due July 2020 rose 7 basis points, or 0.07 percentage point, to 11.37 percent, according to Colombia's stock exchange. The bond's price fell 0.434 centavo to 97.469 centavos per peso.
Venezuela's bolivar gained 2 percent to 4.9 per dollar in the unregulated market from 5 per dollar on Feb. 22, traders said. The government pegs its currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. People turn to the parallel market when they can't get approval from the government's Foreign Exchange Administration Commission to buy dollars at the official rate.
Venezuela bonds
Venezuela sold $150 million in dollar-denominated bonds from its investment portfolio to 10 banks last week, El Nacional reported.
Each bank bought between $10 million and $15 million of the securities, which included Ecuadorean and Argentine debt that the Venezuelan government had purchased, the newspaper reported, without saying how it obtained the information. A spokesman at the Finance ministry declined to comment when contacted by Bloomberg News.
“The bolivar has been strengthening lately as some of the dollar demand is met with the bond sales,” said Henry Travieso, a trader with Caracas-based brokerage Global Capital Valores.
Peru's sol rose 0.1 percent to 2.8965 per dollar from 2.8995 on Feb. 22. The central bank bought $2 million in the foreign exchange market after purchasing $619.3 million last week to stem the sol's appreciation. The yield on Peru's 8.6 percent sol-denominated bonds due in 2017 was little changed at 6.53 percent, according to Banco BBVA Continental.
Argentina's peso was little changed at 3.158 per dollar. The yield on the nation's 5.83 percent inflation-linked peso bonds due in 2033 rose 2 basis points to 8.49 percent, according to Citigroup Inc.'s unit in Argentina.
Chile's peso slid 0.3 percent to 466.82 per dollar from 465.37 on Friday.
(Source: Bloomberg)