Tuesday, 27 July 2010 21:06 Adriaan Alsema

The Colombian peso strengthened Tuesday, reaching its strongest level against the dollar since October as inflows of foreign direct investment continue to boost the currency.

The peso traded at COP1,849.5 from COP1,859.35 on Monday.

The recent rise in the peso follows the central bank's decision Friday to postpone any decision on the purchase of dollars in the spot market to boost its international reserves and keep the peso from appreciating.

Central bank chairman Jose Dario Uribe said Friday the central bank could resume its dollar purchases, which were halted on June 30, at any moment while adding that the exchange rate had been "very stable" in recent weeks.

Between March and June, the central bank bought $1.6 billion on the spot market to tame the peso appreciation.

"The central bank will have no choice but to start buying dollars if it wants to avoid a stronger appreciation of the peso," said Julian Cardenas, an analyst with local brokerage firm Corredores Asociados.

A massive influx of foreign direct investment into the Colombian oil and mining industry is behind the peso's surge this year. Cardenas said FDI in Colombia could reach around $11 billion this year.

Bank of America Merrill Lynch estimated in a recent report that the peso could trade at COP1,850 at the end of the third quarter and close the year at COP1,900.

The Colombian stock exchange, meanwhile, continued with its string of recent record highs and the benchmark IGBC index rose 0.28% to 13,518 points.

In the local bond market, the yield on the benchmark local peso-denominated bond, known as TES, maturing in 2020 rose to 7.670% from 7.605% Monday. (Darcy Crowe / Dow Jones)

http://colombiareports.com/colombia-news/economy/11040-peso-strengthens-to-cop18495-0n-fdi-inflows.html