‘Last chance’ for cheap dollars, says Colombia’s Cárdenas
Colombian finance minister Mauricio Cárdenas warns the peso is set to fall further, as other Latin American policymakers brace for similar moves
Colombia's finance minister has fired a sharp warning shot over
the likely fallout from the US's normalization of monetary
policy, saying the peso is destined to weaken.
"I'm convinced that this is the last chance that markets have
to buy cheap dollars," Mauricio Cárdenas tells
LatinFinance. "Our currency is too strong and it's not
going to remain as strong as it is now."
The comments come after a sharp sell-off in the Colombian peso
pushed it from 1,842 to the US dollar in May, to 1,950 in early
September. While the rush out of the peso reversed somewhat -
it was trading around 1,880 to the dollar in late October -
Cárdenas says the broader trend will continue.
"Higher interest rates in the US and lower commodity prices
definitely point in the direction of depreciating currencies in
countries like Colombia. The tendency is for the US dollar to
get stronger and for Latin American currencies to get weaker.
That's where the fundamentals are heading."
Across Latin America, policymakers are bracing for the unwind
of the US's quantitative easing program. Some have intervened
in their currency markets in recent years as developed market
central banks flushed liquidity into their slowing
economies. Now, Latin policymakers are facing a drastically
"In terms of
the global environment we still are concerned about the
important unknowns, the uncertainties surrounding mostly the
two key policies in the US, monetary and fiscal," says
Agustín Carstens, governor of the Bank of Mexico. "We
don't have much clarity there and we will have to follow this
A weaker currency is not necessarily a bad thing - Carstens
notes that a falling peso will give exporters a lift.
Peru is resilient to abrupt changes of market moods, says
finance minister Miguel Castilla. "Tapering affects us in that
there is no more cheap external capital," he tells
LatinFinance. "But most of our external capital is
FDI, so it is less linked towards a yield seeking
The sol has
also weakened since May, falling from 2.60 to the dollar, to
nearly 2.80. Peru's central bank has slashed bank reserve
requirements in a bid to keep liquidity in the system.
"We have been
reducing reserve requirements for four months," says Julio
Velarde, the governor of Peru's central bank. "It has helped
the growth of credit. It's a sort of QE. In August, the flow of
credit was the second highest in 44 months."
policymakers' currency views, and for
Cárdenas' outlook on Colombia's investment needs,
see the November/December
issue of LatinFinance.