The Bank of the Republic in Colombia has announced the launch of a foreign currency purchase program aimed at increasing the country’s international reserves. The decision to initiate this program follows the recent 25 basis point cut in the interest rate by the Board of Directors to 13%.
According to the Bank of the Republic, the purpose of the program is to maintain appropriate levels of external liquidity and prepare for a potential gradual reduction in the amount of access to the Flexible Credit Line (LCF) that Colombia has with the IMF. The program will involve monthly purchases of up to US$200 million using a mechanism known as put.
The Bank of the Republic has stated that the purchases will only be carried out when the Representative Market Rate (TRM) is below its 20-day average, in order to avoid purchases during periods of exchange rate pressure. The program will also involve option auctions, with the first auction scheduled for December 28 and a quota of US$200 million. Participants will pay a premium and the exercise price of the options will be based on the TRM in force on the day of exercise.
The announcement of the program was made on Twitter by the Banco República, with a tweet stating that the goal is to gradually accumulate international reserves of up to USD 1.5 billion. The program is set to begin in January 2024, with the first auction scheduled for January 2.