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Colombia Keeps Rate at Record Low 3% as Growth Isn't Fueling Inflation
Colombia’s central bank kept its benchmark interest rate unchanged at a record low as policy makers judged that quickening economic growth doesn’t pose a threat of higher inflation.
The seven-member board, led by bank President Jose Dario Uribe, kept the interbank rate at 3 percent after April’s surprise half-point cut. Today’s decision matched the forecasts of all 19 economists surveyed by Bloomberg.
Colombia’s Finance Ministry this week raised its forecast for economic growth this year to 3 percent from 2.5 percent. Still, the International Monetary Fund expects Colombia’s recovery from its first recession in a decade to lag behind its South American neighbors. At the same time, the annual pace of consumer price increases remains near the bottom of the central bank’s 2 percent to 4 percent target range.
“Inflation is completely under control,” said Camila Estrada, the head analyst at Helm Bank SA. She expects policy makers to hold rates until the first quarter of 2011.
Colombian monetary policy is out of step with its faster- growing neighbors Brazil, Peru, and Chile, which have raised rates in the past month to prevent their economies from overheating.
The IMF is forecasting growth of 2.25 percent for the Colombian economy this year, slower than all other South American economies except Venezuela, which is in recession.
“Information received in the last weeks indicate that the Colombian economy is growing at a faster pace than expected without generating inflationary pressure,” Uribe told reporters.
Annual consumer price inflation quickened to 2.07 percent in May, from 1.98 percent in April. Inflation will end the year at 3.1 percent, according to the average estimate of 44 economists in a central bank survey published June 10.
Venezuela, Trade Flows
Colombia’s growth is lagging its neighbors in part because of a diplomatic dispute with Venezuela, which caused a slump in exports to its second-largest trading partner after the U.S.
“No other country in the region has a similar problem with a trading partner,” said Carola Sandy, an economist with Credit Suisse Group AG, speaking by telephone from New York. “The pace at which exports are falling is more than we were expecting.”
Exports to Venezuela fell 69 percent in April from the same month in 2009, according the national statistics agency. Trade with Venezuela collapsed following a dispute in July 2009 over the U.S. plans to strengthen its military presence in Colombia.
The fall in exports to Venezuela was offset by a 98 percent increase in exports to the U.S. and a 172 percent in increase in exports to China, which were mostly caused by an increase in oil exports as crude prices recovered.
“Colombia is selling more oil to the U.S.,” Sandy said. “For the industrial sector and food producers, more sales to the U.S. don’t do anything.”
Europe, Election
The bank won’t continue buying $20 million daily in the foreign-exchange market after June 30 and will evaluate the need to intervene in the market, Uribe said.
The financial crisis in Europe is unlikely to have a large effect on Colombian growth unless it causes a sharp drop in the price of oil or other commodities, said Rupert Stebbings, Managing Director of the Colombian unit of Celfin Capital SA, a Santiago-based brokerage.
“Commodity prices are important for Colombia, but they’re a lot more important for Peru and Chile, and they don’t seem to be struggling too much,” Stebbings said.
Today’s decision came as Colombians prepare to vote in the second round of presidential elections June 20. Former Defense Minister Juan Manuel Santos is favored to defeat two-time Bogota Mayor Antanas Mockus by almost 40 points, according to a Gallup Colombia poll taken June 5-7.
Santos, running on the La U party ticket, won 47 percent of in the first-round ballot May 30 versus 21 percent for Green Party candidate Mockus.
To contact the reporter on this story: Matthew Bristow in Bogota at mbristow51@bloomberg.net
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