Colombian Peso Slides on Rising Bets for Larger Rate Cuts

(Bloomberg) -- The Colombian peso slumped, leading losses in emerging markets for a second day after lower-than-expected inflation solidified bets for faster interest rate cuts, dimming the currency’s appeal for carry traders.

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The peso fell 1.2% Tuesday, pushing losses so far this week to about 2.8% — by far the worst among developing peers. The slide follows data released Friday after market close that showed annual inflation slowed to 6.12%, undershooting forecasts by all 23 analysts surveyed by Bloomberg.

“The inflation print was a large trigger that made international agents change their stance because of what it could represent in terms of rate cuts by the central bank,” said Jose Joaquin Prieto Jaramillo, business head at BTG Pactual. “It increases the possibility of larger cuts, which is why the incentive of being invested in the peso drops considerably.”

BBVA strategists say the Colombian central bank can accelerate the pace of rate cuts to 75 basis points this month, from 50 basis points previously, according to a report published on Tuesday. Lower rates hurt the peso’s appeal for carry traders, who borrow in the currency of a low-yielding country to buy high yielders.

The inflation data led President Gustavo Petro to call for more monetary stimulus to revive growth, saying “there’s no excuse at all not to cut the interest rate.”

Colombia’s central bank next meets on Sept. 30. Policymakers began lowering rates back in December, and have since cut borrowing costs from 13.25% to 10.75%.

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