* Central bank raised rate to 5 percent
* Investors seeking higher yields outside developed
By Helen Murphy and Jack Kimball
BOGOTA, Feb 3 Colombia's central bank on
Friday re-established buying at least $20 million daily for at
least three straight months to help stem gains in the currency
amid pressure from exporters.
Emerging market nations such as Colombia have faced a flood
of cheap money in recent months as near-zero interest rates in
developed markets prompt investors to seek higher yields,
pushing up their currencies and strengthening their economies.
The peso has firmed almost 7 percent this year, making it
one of the best performing currencies among the world's 36
most-traded, partly thanks to strong foreign direct investment
The dollar purchase program, which previously ran through
September 2011, would re-start on Monday, the bank said in a
Policy makers on Monday raised the benchmark lending rate a
quarter point to 5 percent to slow inflation and cool bank
lending, bringing complaints from exporters of flowers and
bananas that the move would attract additional capital, boost
the peso and damage their business.
"The rate hike is an invitation for speculative capital to
come to the country in higher volumes, sharpening the
revaluation process," the flower and banana growers industries
said in a joint statement on Wednesday.
"Most worrying is that the measure to hike the interest rate
has not even come accompanied by some exchange rate intervention
given the space that exists to increase reserves."
Banana and flower exporters are among the biggest employers
of rural Colombians and lead a lobby of exporters that have been
the most vocal seeking a weaker currency after as many as 20,000
jobs in the flower industry have been lost in the last four
years which they blame on the strong peso.
In a bid to stem the peso's rise, the government said on
Monday it would not bring in dollars for financing in 2012 and
would keep $1 billion in dividends from state oil company
Ecopetrol, and another $1.2 billion in royalties, abroad.
The government has also said it would avoid imposing capital
controls to prevent pressure on the currency and instead aim for
long-term measures and micro-structural reforms.
Colombia has in the past used tools like lowering taxes to
boost business competitiveness. Back in 2007 it established
unpopular capital controls to deter speculative capital entering
the market. They have since been lifted.
Almost $15 billion in foreign direct investment flowed into
the Andean nation last year, mostly in the oil and mining
sectors, as military blows against drug-funded insurgent groups
made doing business easier and safer.
The bank's dollar purchases may head off further gains in
the peso following the U.S. Federal Reserve's pledge last week
to keep the benchmark U.S. rate low through 2014, sending
investors to seek higher returns in countries like Colombia.