Oil Trades at Two-Week Low on Isaac; Gasoline at Four-Month High

Oil traded near the lowest level in two weeks on speculation Tropical Storm Isaac’s impact on output in the Gulf of Mexico will be limited. Gasoline was near a four- month high amid a fire at Venezuela’s biggest refinery.
West Texas Intermediate futures were little changed in New York after dropping a third day yesterday, the longest losing streak since June. Isaac was near hurricane strength as it headed for the Gulf coast, according to the National Hurricane Center. Storage tanks burned for a fourth day at Venezuela’s 645,000 barrels-a-day Amuay plant, where an Aug. 25 gas explosion killed 48 people. Oil has pared gains before a U.S. Federal Reserve symposium in Jackson Hole, Wyoming, on Aug. 31.
“It seems likely now that Isaac won’t be doing any lasting damage to oil facilities in the Gulf,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “Buyers seem reluctant to take prices too much higher from here until they get further detail” on what the Fed might do to boost economic growth, he said.
Oil for October delivery was at $95.35 a barrel, down 12 cents, in electronic trading on the New York Mercantile Exchange at 4:46 p.m. Sydney time. The contract yesterday fell 68 cents, or 0.7 percent, to $95.47, the lowest close since Aug. 15. Prices are 3.5 percent lower this year.
Brent oil for October settlement was at $112.27 a barrel, up 1 cent, on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to WTI was at $16.92, from $16.79 yesterday.

Gulf Output

Isaac’s center was about 145 miles (235 kilometers) southeast of the mouth of the Mississippi River with top winds of 70 miles per hour, the National Hurricane Center said in an advisory at 2 a.m. in Miami. That’s 4 mph less than hurricane intensity. It was moving northwest at 12 mph and is forecast to strengthen before approaching southeastern Louisiana and Mississippi today, the center said.
The storm halted about 78 percent of oil output and 48 percent of natural-gas production in the Gulf and forced evacuations from 346 production platforms and 41 rigs, the Bureau of Safety and Environmental Enforcement said yesterday. Four refineries in Louisiana were shut, idling combined capacity of 832,700 barrels a day, or 4.8 percent of the U.S. total, and at least four are running at reduced rates.
The region accounts for 23 percent of U.S. oil output and 7 percent of natural gas production, according to the U.S. Energy Department in Washington.

Refinery Closures

Valero Energy Corp. (VLO) is shutting the St. Charles and Meraux refineries in Louisiana, Bill Day, a company spokesman in San Antonio, said by e-mail. Phillips 66 is temporarily shutting down its 247,000 barrel-a-day Alliance refinery at Belle Chasse, Louisiana, the company said in a statement on its website. Exxon Mobil Corp. began closing operations at the Chalmette plant near New Orleans, the company said on a community hotline.
Marathon Petroleum Corp.’s Garyville refinery in Louisiana is operating at reduced rates, Shane Pochard, communications manager for the company, said in an e-mail. Motiva Enterprises LLC’s Norco and Covent refineries in Louisiana are also running at lower rates, the company said on its website, as is Exxon Mobil’s Baton Rouge plant.
In Venezuela, firefighters have put out one of the three blazes at the Amuay refinery and extinguished about 75 percent of another, President Hugo Chavez said on his Twitter account today. There is no structural damage to the processing units at the facility about 240 miles west of Caracas, according to Oil Minister Rafael Ramirez.

Gasoline Premium

Venezuela has 4 million barrels of inventories of gasoline and other petroleum products and continues to produce 735,000 barrels of gasoline a day at plants, including nearby Cardon, according to Ramirez. Amuay will be restarted within two days after all the fires have been extinguished, he said.
Gasoline for September delivery advanced as much as 0.2 percent to $3.1621 a gallon on the New York Mercantile Exchange today after climbing 2.5 percent to $3.1548 yesterday, the highest settlement since April 30. The premium of the motor fuel to WTI gained as much as 1 percent to $28.71 a barrel, the widest gap in a week, after increasing 9 percent yesterday.
U.S. crude stockpiles probably shrank 2 million barrels last week, according to a Bloomberg News survey before an Energy Department report tomorrow. That would be the fifth weekly drop, the longest run of declines since July 2011. The decrease would leave inventories at the lowest level since March 23.

Fuel Supplies

Gasoline supplies may have fallen 1.4 million barrels, according to the median estimate of 11 analysts in the Bloomberg survey. Distillate stockpiles, a category that includes diesel and heating oil, probably rose 400,000 barrels.
The American Petroleum Institute will release separate inventory data today. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.
Oil in New York has technical support around $94.05 a barrel along the bottom of a short-term uptrend channel on the daily chart, according to data compiled by Bloomberg. This channel started from the June 28 drop to $77.28, the 2012 intraday low. Crude’s moving average convergence-divergence indicator yesterday fell below its signal line, indicating a loss of momentum. Investors tend to sell contracts on a so- called MACD crossover.
Federal Reserve Chairman Ben S. Bernanke will speak at the Kansas City Fed’s annual symposium in Jackson Hole, where he may shed light on the likelihood of a third round of asset purchases. The central bank bought $2.3 trillion of debt since 2008 in two previous rounds of quantitative easing.

Source: Bloomberg

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Gasoline Jumps on Supply Threats as S&P 500 Advances

Gasoline climbed to the highest in four months after a refinery explosion in Venezuela killed 39 people and Tropical Storm Isaac shut rigs in the Gulf of Mexico. Apple Inc. (AAPL) rallied after winning a patent lawsuit, helping push U.S. technology stocks higher.
Gasoline futures jumped 1.3 percent to $3.1193 a gallon at 9:58 a.m. in New York and climbed as high as $3.2050. The Nasdaq 100 Index rose as much as 0.5 percent to above its highest closing level in 12 years as Apple increased 2 percent following its $1 billion victory over Samsung Electronics Co., which plunged the most in almost four years. The Standard & Poor’s 500 Index fluctuated near 1,411. The Stoxx Europe 600 Index (SXXP) added 0.2 percent and the euro rose versus 10 of 16 major peers. Spain’s 10-year bonds halted a three-day drop.

 

Fire rises over Amuay refinery near Punto Fijo, Venezuela on Saturday. Photographer: Daniela Primera/Associated Press

Aug. 27 (Bloomberg) -- Eugen Weinberg, head of commodities research at Commerzbank AG, talks about the outlook for oil, precious metals and agricultural commodities. He speaks from Frankfurt with Guy Johnson on Bloomberg Television's "The Pulse." (Source: Bloomberg)

 

Soybeans are harvested near Rojas, Argentina. Photographer: Diego Giudice/Bloomberg

About 24 percent of U.S. oil production and 8.2 percent of natural gas output from the Gulf of Mexico has been halted as Isaac strengthened. Venezuela’s Amuay plant, the country’s largest refinery, was shut as firefighters tackled flames following the Aug. 25 blast. German business confidence fell for a fourth straight month, adding to signs Europe’s debt crisis is damping growth.
“Gasoline is high because details about the Venezuelan refinery outage are unknown,” Alexander Poegl, an analyst at JBC Energy GmbH in Vienna, said by phone today. “Gasoline and oil prices are reacting to Tropical Storm Isaac, which is shutting in oil output and refineries as it strengthens into a hurricane.”
The S&P GSCI Index of commodities rose for the first time in three days. November-delivery soybeans rallied to a record as the worst U.S. drought in half a century hurt production in the world’s largest grower, while export demand increased. Corn and wheat were little changed after rallying earlier.

Apple Victory

The S&P 500 on Aug. 24 snapped a six-week rally, its longest since January 2011. Apple rose today after a U.S. jury on Aug. 24 found that Samsung Electronics Co. infringed on six of its mobile-device patents. Samsung tumbled almost 7.5 percent in South Korea, its biggest drop since 2008.
Hertz Global Holdings Inc. surged 12 percent. After more than half a decade of trying, Hertz struck a deal to buy Dollar Thrifty Automotive Group Inc. for about $2.6 billion in cash and secure its place as the No. 2 player in the U.S. car-rental market. Dollar Thrifty climbed 7.4 percent.
The volume of shares changing hands on the benchmark Stoxx 600 was 60 percent lower than the average of the last 30 days because the U.K. market was closed for a public holiday. Q-Cells SE (QCE) surged 15 percent after South Korea’s Hanwha Group signed a deal to acquire the insolvent German producer of solar cells.

Nokia Rallies

Nokia Oyj (NOK1V) rallied 6.7 percent, the biggest gain in the Stoxx 600, following the Samsung ruling. The U.S. may ban sales of some Samsung handsets, potentially benefiting Nokia devices that run Microsoft Corp.’s Windows operating system.
The MSCI Emerging Markets (MXEF) Index fell 0.4 percent. The Shanghai Composite Index retreated 1.7 percent as a report showed Chinese industrial company profits slipped in July. Russia’s Micex Index and India’s Sensex lost at leasth 0.6 percent.
The euro strengthened 0.1 percent against the dollar and yen as German Finance Minister Wolfgang Schaeuble prepared to meet his French counterpart to discuss Europe’s debt crisis. The shared currency climbed even after the Ifo institute in Munich said its business climate index dropped for a fourth straight month in August to its lowest reading since March 2010.
The Australian dollar touched a one-month low against the U.S. currency after a report showed profits for industrial companies in China, Australia’s biggest trading partner, fell 5.4 percent in July from a year earlier. The currency weakened as much as 0.3 percent to $1.0372.

Bernanke Watch

Treasuries extended gains from last week on speculation Federal Reserve Chairman Ben S. Bernanke will outline the case for further central bank action to support the economy at this week’s meeting of policy makers at Jackson Hole, Wyoming. The yield on the 10-year bond fell one basis point to 1.68 percent.
Bernanke “might fuel hopes that down the road, we could still see monetary stimulus from the Fed,” Vasu Menon, head of content and research for wealth management at Oversea-Chinese Banking Corp. in Singapore, said in a Bloomberg Television interview.
Bernanke -- returning this week to the scene of a 2010 speech that foreshadowed a second round of quantitative easing - - probably will disappoint investors looking for him to signal new stimulus, economists said.

Jackson Hole

Bernanke probably won’t use his Aug. 31 speech to suggest a third round of bond buying is at hand, according to economists including Michael Feroli at JPMorgan Chase & Co. and James O’Sullivan from High Frequency Economics. Members of the Federal Open Market Committee -- who meet next on Sept. 12-13 --are closely monitoring unemployment and other data and have been divided about whether to spur expansion. The U.S. economy also remains beholden to political decisions made in Washington and in Europe, which is struggling to contain its debt crisis.
The yield on Spain’s 10-year bonds fell three basis points to 6.39 percent, outperforming similar-maturity German bunds, which were little changed.
Gold for immediate delivery advanced as much as 0.4 percent to a four-month high of $1,676.90 an ounce before erasing gains. Spot silver climbed 0.2 percent, a sixth straight advance that was its longest streak since January. Copper futures in New York were down 0.2 percent. The London Metal Exchange was closed because of the U.K. holiday.

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Aussie Dollar Touches Month-Low on Global Growth Concerns

Australia’s dollar touched its lowest level in a month, extending a two-week decline, as concern global growth is waning curbed demand for higher- yielding assets.
The so-called Aussie slid versus most of its 16 major counterparts after a report showed profits for industrial companies in China, Australia’s biggest trading partner, fell 5.4 percent in July from a year earlier. Australia’s currency and its New Zealand counterpart weakened before a report today that may show German business confidence fell to a two-year low, adding to signs Europe’s debt crisis is damping the region’s prospects for growth.
“There’s only so far the Aussie can rally when concerns for the global economy remain significant,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “Those concerns have only been further fueled by what’s been happening in China.”
Australia’s currency dropped 0.2 percent to $1.0383 as of 4:27 p.m. in Sydney after touching $1.0372, the lowest since July 26. The Aussie fell 0.2 percent to $1.0403 in the five days ended Aug. 24. It lost 0.1 percent to 81.74 yen.
The New Zealand dollar, nicknamed the kiwi, declined 0.1 percent to 81.04 U.S. cents after rising 0.5 percent to 81.12 last week. It traded at 63.81 yen from 63.83.
Ten-year note yields in Australia dropped three basis points, or 0.03 percentage point, to 3.21 percent. The rate on 15-year securities fell to as low as 3.47 percent, sliding below the 3.5 percent overnight cash rate target for the first time since Aug. 10, according to data compiled by Bloomberg.
New Zealand’s swap rate, a fixed payment made to receive floating rates, dropped two basis points to 2.70 percent.

Profits Drop

The decline in Chinese industrial profits last month was the fourth straight drop, according to data released today from the National Bureau of Statistics.
On an inspection of Guangdong province, Premier Wen Jiabao said difficulties in stabilizing the expansion are “still relatively large” and called for measures to promote export growth to help meet the country’s annual economic targets, the official Xinhua News Agency reported Aug. 25.
BHP Billiton Ltd. (BHP), the world’s biggest mining company, expects “long-term” price declines for its commodities as slower economic expansion in China weighs on demand, Chief Executive Officer Marius Kloppers said on the Australian Broadcasting Corp.’s Inside Business program yesterday.
The Munich-based Ifo institute’s business climate index for Germany probably slid to 102.7 in this month, according to the median estimate of economists in a Bloomberg News survey before today’s report. That would be the least since March 2010 and compares with a reading of 103.3 in July.

Aussie Longs

Futures traders increased their bets that the Australian dollar will rise against the greenback, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers on a gain in the Aussie compared with those on a drop was 86,882 on Aug. 21, up from so- called net longs of 66,679 a week earlier.
The most recent figure was the highest since April 2011, when net longs climbed to a record, according to data compiled by Bloomberg going back to 1993.
Demand for Australian and New Zealand’s currencies was supported after Federal Reserve Chairman Ben S. Bernanke said “there is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery.”
Bernanke made the remarks in a letter dated Aug. 22 to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee. The note was in response to an Aug. 1 letter from Issa asking questions about monetary policy.

Jackson Hole

The U.S. central bank chairman will speak at the Kansas City Fed’s annual economic symposium in Jackson Hole on Aug. 31. Minutes of the Fed’s latest policy meeting released last week showed officials remained supportive of a third round of asset purchases under quantitative easing, or QE. Policy makers will next meet on Sept. 12-13.
“The reason why the Aussie has been so well-supported is precisely because the U.S. dollar has been weak on expectations for the Fed to ease monetary policy,” said Andrew Salter, a strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “It should underpin the Aussie dollar for a while, at the very least up until Jackson Hole.”

Source: Bloomberg.

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Gold Set for Best Year Since 2010 as Stimulus Bets Stoke Demand

Gold is poised to climb the most in two years as prospects for additional stimulus by governments from the U.S. to China to revive economic growth stoke demand for the precious metal as a bet against inflation.
Bullion for immediate delivery may reach $1,800 an ounce by the year-end, extending gains this year to 15 percent, according to the median forecast in a Bloomberg survey of 15 traders and analysts at a conference in Hyderabad in South India on Aug. 25. That would be the most since a 30 percent surge in 2010, data compiled by Bloomberg show.

 

Gold is set for a 12th year of gains as the European sovereign-debt crisis boosts haven demand amid speculation of further policy easing by central banks, including the U.S. Federal Reserve, which may be considering a third round of so-called quantitative easing, or QE3. Photographer: Kerem Uzel/Bloomberg

Gold is set for a 12th year of gains as the European sovereign-debt crisis boosts haven demand amid speculation of further policy easing by central banks, including the U.S. Federal Reserve, which may be considering a third round of so- called quantitative easing, or QE3. Investment holdings have expanded to a record on demand for a hedge against inflation.
“The euro zone has been quiet of late, but that doesn’t mean the problems have disappeared,” said Jeffrey Rhodes, global head of precious metals at INTL FCStone Inc. (INTL), who expects gold to rally to $1,975 by year-end. “The U.S. economy has been sluggish and there is a growing belief that there is going to be QE3 soon. This anticipation is driving the market.”
Fed Chairman Ben S. Bernanke said last week there’s “scope for further action” from the U.S. central bank. He is scheduled to speak later this week at the Fed’s annual symposium in Jackson Hole, Wyoming. China’s Premier Wen Jiabao has urged additional steps to support exports and help meet economic targets as evidence mounts the slowdown is deepening.

Europe Strains

Gold for immediate delivery rose as much as 0.4 percent to $1,676.90 an ounce today, the highest since April 13, and traded at $1,674.60 an ounce at 9:49 a.m. in Mumbai. Prices gained 3.4 percent last week, the most since the week ended Jan. 27. Spot gold reached a record $1,921.15 on Sept. 6.
“Europe’s financial situation is straining at the seams and with no fix forthcoming, demand for safe havens is likely to remain strong,” said Bimal Das, director at ScotiaMocatta, the metals trading unit of Bank of Nova Scotia.
The European leaders are preparing for a critical month in the three-year-old crisis that will involve the formulation of a European Central Bank bond-buying plan, a progress report by Greece’s international creditors and a looming German court decision on bailout funding on Sept. 12.
“More cash is coming into the market from investors,” said Philip Klapwijk, the global head of metals analytics at Thomson Reuters GFMS Ltd. “We expect there to be QE3 by September and gold will move substantially higher. The ETF demand has picked up and will continue to grow as prices rise.”

Soros, Paulson

Holdings in gold-backed exchange-traded products, or ETPs, rose 0.1 percent to 2,448.64 metric tons on Aug. 24, data tracked by Bloomberg show. Billionaire investors George Soros and John Paulson increased their stakes in the SPDR Gold Trust (GLD), the biggest gold-backed ETP, in the second quarter, U.S. Securities and Exchange Commission filings showed Aug. 14.
Central banks will purchase close to 500 tons this year after becoming net buyers in 2009, according to the producer- funded World Gold Council. Central banks added 254.2 tons to their holdings in the first half, according to the council, as countries from Russia to South Korea added to reserves.
“There is official interest in gold and central banks are buying, from Russia to Korea,” said Jeremy East, global head of metals trading at Standard Chartered Plc. “Central bank purchases are not driven by price but by asset allocation.”

Indian Imports

Gold imports by India, the biggest buyer, may decline by 250 tons to 350 tons this year as record prices in rupees cut into demand, East said. Consumption rose to a record 963.1 tons last year, driving bullion imports to the highest ever at 958 tons, according to the gold council.
“The Indian currency has weakened and could weaken further, so demand may not come in,” East said. The Indian rupee declined to a record of 57.3275 per dollar on June 22, making imports costlier.
Bullion for October delivery gained as much as 0.4 percent to an all-time high of 31,084 rupees ($559) per 10 grams on the Multi Commodity Exchange of India Ltd. today. Prices have climbed 14 percent this year.
GFMS is owned by Thomson Reuters Corp. and Bloomberg competes with Thomson Reuters in selling financial and legal information and trading systems.

Source: Bloomberg

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Egyptian Shares Rise to Highest Since March as Tensions Ease

Egypt’s stocks climbed to the highest level in more than five months after a protest against the president and the Muslim Brotherhood failed to rally mass support and the constitution neared completion.
The benchmark EGX 30 Index advanced 0.7 percent to 5,253.41 at 12:44 p.m. in Cairo, the highest intraday level since March 13. In the Persian Gulf, Abu Dhabi’s ADX General Index rose for an 11th day, the longest winning streak in almost six months, gaining 0.2 percent. Dubai’s DFM General Index decreased 1 percent. The Bloomberg GCC 200 Index was little changed at 1:45 p.m. in Riyadh.
Protests that were planned for over the weekend in Cairo and Alexandria against President Mohamed Mursi and his allies were largely peaceful. A draft of the constitution will be ready to be put to a referendum by late September and Egyptians will go to the polls to vote for parliament members within two months after its approval, Prime Minister Hisham Qandil said yesterday.
“It is clear now that the majority of Egyptians are willing to give Mursi the benefit of the doubt until the end of” his first 100 days in office, Wafik Dawood, director of institutional sales at Cairo-based Mega Investments Securities, said by phone. “At that point the real opposition is going to show up. Not the few thousands that showed up over the weekend.”

Loan Talks

Mursi consolidated power this month by forcing into retirement the country’s top two generals, a move that wasn’t contested by the military. The North African nation also restarted loan talks with the International Monetary Fund as it seeks to end more than 18 months of political and economic unrest.
Commercial International Bank Egypt SAE (COMI), the country’s biggest publicly traded lender, gained 1.2 percent to 29.2 Egyptian pounds, heading for the highest close in more than a month. The bank was removed from Standard and Poor’s negative watch and had its B credit rating affirmed.
Dubai’s DP World (DPW) lost 1.5 percent, the most in almost two weeks, to 10.2 dirhams. The world’s third-largest ports operator had its contract canceled by Yemen’s Gulf of Aden Ports, according to the country’s state news agency.
Saudi Arabia’s Tadawul All Share Index and Kuwait’s SE Price Index fell 0.2 percent while Oman’s MSM30 Index declined less than 0.1 percent. Qatar’s QE Index added 0.1 percent.
In Israel, the benchmark TA-25 Index (SASEIDX) advanced 0.2 percent and the yield on the nation’s benchmark 5.5 percent bonds maturing in January 2022 climbed 1 basis point to 4.14 percent.

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Kloppers Sees Long-Term Price Decline for BHP’s Commodities

BHP Billiton Ltd. (BHP), the world’s biggest mining company, expects “long-term” price declines for its commodities as slower economic expansion in China weighs on demand, Chief Executive Officer Marius Kloppers said.
“We go through a pretty rigorous process to pick those long-term prices,” Kloppers told the Inside Business program on the Australian Broadcasting Corp. “They are, by and large, lower. Some products are going to more attractive than others.”

 

Marius Kloppers, chief executive officer of BHP Billiton Ltd., poses for a photograph during a media event in London, U.K., on Wednesday, Aug. 22, 2012.. Photographer: Simon Dawson/Bloomberg

BHP last week put on hold approvals for about $68 billion of projects, including the Olympic Dam expansion in South Australia after second-half profit slumped. Kloppers said on today’s program he’s seeking to control costs and won’t allocate new capital to industries such as aluminum and nickel as Melbourne-based BHP narrows its exploration focus.
Australia’s economy has been bolstered in recent years by the biggest resources bonanza since a gold rush in the 1850s on Chinese-led demand for iron ore, coal and natural gas. Mining investment will peak within two years, Reserve Bank of Australia Governor Glenn Stevens said Aug. 24 in semiannual testimony at parliament in Canberra, a day after Resources Minister Martin Ferguson said the boom was over.
BHP, which this month wrote down the value of Western Australia nickel operations and U.S. shale gas assets by $3.3 billion, is now only exploring for oil, gas and copper, Kloppers said on the program.
Along with coal and iron ore, those five products are the primary profit drivers at BHP, he said. Potash, a form of potassium used to strengthen roots and help plants resist drought, may join that group as BHP develops its Canadian projects, he said.

Falling Stock

Shares of BHP have fallen 3.9 percent this year, trailing the 7.2 percent gain by Australia’s benchmark S&P/ASX 200 index.
Prices will decline in the long term, “across the product suite,” Kloppers said. “That is what we have assumed in our planning processes for the last couple of years and we see no reason to change that.”
As China’s economic growth slows, demand for BHP’s products will rise at a slower pace, Kloppers said.
China, the world’s second-largest economy, expanded 7.6 percent in the second quarter, the slowest pace in three years. Brazil’s Vale SA, the biggest iron-ore producer, said this month that China’s “golden years” are gone.

‘Attractive Opportunities’

Still, Kloppers said there are “attractive opportunities” for BHP and the Australian company plans to increase capital expenditure this year compared with last year.
BHP should be able to sell its commodities in greater quantities even as prices fall, he said.
Volumes across the group should increase about 10 percent in each of the next two years, he told the program. BHP plans to expand the capacity of its Queensland coal business 50 percent in the next two years and the output of the Escondida copper mine, the world’s largest, by the same amount, he said.
BHP quit titanium minerals in February after agreeing to sell its stake in Richards Bay Minerals to Rio Tinto Group. Kloppers said in February that BHP was “inching closer” to a similar decision on the diamond industry.
“We will only exit if we get value for the assets,” he said on the Inside Business program. “What we’ve done up until now is just to say, ‘We will not spend new capital on those projects and that is pretty much the case for aluminum. It is also the case for nickel.”

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Colombia Cuts Rate to 4.75% and Steps Up Dollar Purchases

Colombia reduced borrowing costs for a second straight month after inflation slowed to the target rate, while also announcing that the central bank will buy $700 million by the end of September to help stem a rally by the country’s currency.
The seven-member board, led by bank chief Jose Dario Uribe, voted to cut the overnight lending rate by a quarter point to 4.75 percent, as forecast by 29 of 33 analysts surveyed by Bloomberg. The others had expected rates to be left unchanged. Uribe said that the decision was unanimous.

 

Today’s meeting was the last for outgoing Finance Minister Juan Carlos Echeverry, who resigned yesterday citing personal reasons. Photographer: Alejandra Parra/Bloomberg

“According to the evaluation of risks, the Board considered it appropriate to reduce the interest rate intervention,” policy makers said in their statement posted on the central bank’s website.
The central bank last month cut its key rate for the first time since 2010, and signaled a “change in monetary stance,” arguing in the minutes that slower inflation allows them to maximize “employment and product growth.” Inflation slowed to 3.03 percent in July, down from 3.73 percent at the start of the year. The central bank targets inflation of 3 percent, plus or minus one percentage point.

Peso

“Additionally, in order to provide more permanent liquidity to the economy, the Board decided that, in the remainder of August and September, will buy $700 million through the mechanism of daily auctions of at least $20 million,” policy makers said in their statement.
The peso has rallied 6.8 percent in 2012, the biggest gain of the world’s 31 most-traded currencies tracked by Bloomberg after the Hungarian forint and the Chilean peso, on the strength of sustained foreign investment into the Andean nation’s oil and mining projects.
The increased dollar purchases, combined with purchases of dollars by the Treasury, “has the potential to tame the peso’s rally in the next months,” said Daniel Velandia, the head analyst at Correval SA brokerage in Bogota.
“It will be on average $8 million more daily than what they were buying,” Velandia said. “It’s a clear step toward more intervention in the market.”
The measure could prevent the peso from appreciating above 1,800 per dollar for the rest of the year, Velandia said. The currency weakened 0.3 percent to 1814.55 per dollar today from 1809.35 yesterday.
The Treasury began its own program of foreign currency intervention this month to help Colombian exporters.

‘Fundamental Reason’

The central bank last month cut its forecast for 2012 economic growth to a range of 3 percent to 5 percent, from 4 percent to 6 percent, and predicted expansion of 2 percent to 5 percent next year.
In an interview last week, central bank board member Cesar Vallejo said the “key” determinant of interest rate moves is whether gross domestic product is growing faster or slower than its long-term potential rate. Uribe said last month that the economy’s long-term potential growth rate is 4 percent to 5 percent.
The “fundamental reason” for the rate cuts is the global slowdown, said Andres Langebaek, senior economist at Banco Davivienda SA (PFDAVVND), the analyst with the best record of forecasting the central bank’s move in Bloomberg surveys.
“There are serious problems for a rapid recovery in the world economy,” Langebaek said in a phone interview before the rate decision. “In these circumstances our growth could be quite weak in the second half of the year.”

September, Cardenas

Langebaek forecasts that the central bank will cut the benchmark rate to 4.5 percent at its September meeting, then hold it at that level for the remainder of the year.
Today’s meeting was the last for outgoing Finance Minister Juan Carlos Echeverry, who resigned yesterday citing personal reasons.
He will be replaced by Berkeley-trained economist Mauricio Cardenas, who currently serves as mines and energy minister.
In a radio interview this morning, Echeverry said he would argue for increased dollar purchases at today’s meeting. Echeverry said last week that he was “generally not on the winning side” at the bank’s board meetings.

Source: Bloomberg

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