Colombian Peso Drops 2.8% Amid Local Dollar Shortage

The Colombian peso fell approximately 2.8% this week, marking the worst performance among 22 emerging-market peers. The decline was driven by a technical dollar shortage in the local financial system, where a negative dollar liquidity gauge created temporary demand for U.S. dollars and pressured the currency.

Despite the weekly stumble, the peso remains near multi-year highs, reaching levels not seen since October 2018. The official market rate settled at 3,048.12 pesos on Monday. This broader rally is attributed to high interest rates of 12% and the June election victory of President Abelardo de la Espriella, whose market-friendly platform bolstered confidence in fiscal deficit reduction.

While the strong currency benefits importers, the National Business Association warns that the trend is squeezing profit margins for exporters. The association is urging economic authorities to cut interest rates to discourage international capital inflows and stabilize the exchange rate. Market volatility is further influenced by anticipated monetary policy remarks from Federal Reserve Chair Kevin Warsh.