BOGOTA Aug 22 The Colombian peso weakened to its lowest level in more than three months on Friday, weighed by a widely awaited speech by Federal Reserve Chair Janet Yellen and JP Morgan's removal of the currency from its "overweight" portfolio recommendations.
The peso fell 0.59 percent from Thursday's closing price, to an intraday low of 1,929.85 pesos to the dollar before trimming losses to close 0.27 percent lower at 1923.80 pesos per dollar.
Yellen on Friday said the Fed may have to raise U.S. interest rates sooner and faster than expected, if the labor market may be tigther than it seems. Higher interest rates tend to boost the allure of the dollar as they raise the yield on some U.S. assets..
"Yellen's speech strengthened the dollar on an international level, which is transmitted to Latin America," said Cristian Lancheros, an analyst at the Acciones y Valores brokerage.
After Colombia's foreign exchange market closed on Thursday, JP Morgan announced that it moved the Colombian peso from "overweight" to "medium-weight" in its GBI-EM model portfolio.
Among its concerns, the bank cited contemplated pension fund reform which would mandate some funds investing a chunk of their assets abroad.
If Colombian pension funds step up investments abroad, that would step up demand for dollars and could be bearish for the peso, analysts say.
"Sensitivity over pension reform and headwinds for oil exports are weighing on sentiment, reducing out-performance potential of COP [the Colombian peso] notably in the last few weeks," the investment bank said in a note to investors.
The government will take whatever time is necessary to modify its pension rules, though changes will not be immediate, the director of public credit at the finance ministry, Michel Janna, told Reuters late on Thursday.
"Once the decree is ready to be published and executed there will surely be a transition period," Janna said.
"I can't give a date, but there are a series of steps that we'll take in the necessary time to be able to make the best reform possible," he added.
The government and policymakers have expressed concern in recent weeks that attacks by Marxist rebels, increased operating costs and weaker crude prices have started to reduce government income from oil sector exports that could bite into future economic growth. (Writing by Julia Symmes Cobb Editing by W Simon)