Colombian Peso Leads Global Losses on Surprise GDP Drop

(Bloomberg) -- The Colombian peso led losses among global currencies after data showed the economy unexpectedly contracted in the third quarter, raising expectations that the central bank may soon begin unwinding a record monetary tightening cycle.

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The Andean nation’s currency fell 1.4%, closing at 4,025 per US dollar, while the two-year swap rate slid eight basis points to 9.20%, the lowest since early September.

Gross domestic product declined 0.3% in the three months through September from a year earlier, the statistics agency said Wednesday, posting the first year-on-year contraction since 2020. The result was below the median estimate for a 0.5% expansion of economists surveyed by Bloomberg, none of whom forecast a decline. The economy grew 0.2% from the previous quarter.

Colombia’s deteriorating economic growth has led President Gustavo Petro to pressure the central bank, known as Banrep, to cut interest rates, currently at 13.25%, the highest level among major regional peers. Finance Minister Ricardo Bonilla, who’s a voting member of the monetary policy committee, has campaigned to reduce borrowing costs at the central bank’s last two meetings, but he’s failed to convince the majority of colleagues.

After the data was published, the leftist leader said Colombia has two immediate paths of action, which include cutting interest rates and the implementation of countercyclical fiscal policy to promote economic growth, he posted on X, formerly known as Twitter.

The contraction was led by construction, manufacturing, and transportation and trade, which fell 8%, 6.2%, and 3.5% from a year earlier, respectively.

“This downward surprise in economic activity should lead Banrep to begin its monetary policy loosening cycle in December,” said Munir Jalil, Andes chief economist at BTG Pactual.

The Andean nation and Mexico are alone among Latin America’s major inflation-targeting economies that have yet to begin easing interest rates. Chile, Brazil, Peru, and some smaller economies have already started to cut interest rates.

Along with the economy’s rapid cooling — economists see just 1.3% growth in 2023 — consumer price increases, too, have decelerated. Annual inflation printed at 10.48% last month down from an April peak of 13.34%, but that’s still nearly three times the ceiling of the 2%-to-4% target range.

The central bank forecasts Colombia’s economy will expand by 1.2% this year and 0.8% in 2024.

--With assistance from Rafael Gayol, Philip Sanders and Maria Elena Vizcaino.

(Updates with peso move and President Petro’s reaction starting in the first paragraph)

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