Colombian Pension Funds to limit FX Transactions

Photo: Adil Siddiqui

Colombia’s Pension Funds have been discouraged to perform foreign-exchange transactions in a bid to halt volatility in the Peso.

The Finance Ministry said obligatory pension funds will only be allowed to perform foreign-exchange transactions for a period of five business days for a maximum of 2.5% of the fund’s value. “The measure seeks to stop operations that have generated volatility in the exchange rate,” the Finance Ministry said in a statement. The total value of Colombia’s obligatory pension funds is $52 billion, which means that, over a period of five days, the foreign-exchange transactions of the funds can’t surpass $1.3 billion, the statement said.

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The Colombian government, which has struggled to tame the peso’s strength against the dollar for much of this year, is now seeking to keep the peso stable at its current levels. The peso suffered a sharp decline in September as fears emerged of a sovereign-debt crisis in Europe and a new recession in the U.S.

Local brokerage Correval said in a research note that the measure disclosed was unlikely to have an impact on the peso’s medium-term appreciation trend. The government’s decision, however, could limit liquidity and as a result could reduce volatility in the exchange rate, Correval said.

Last month, the central bank disclosed it will step in and buy or sell $200 million dollars if the peso moves up or down by more than 2% from its 10-day average in a effort to limit volatility in the exchange rate.