Colombia Keeps 5.25% Rate to Gauge Effect of Nine Increases
Colombia’s central bank kept borrowing costs unchanged as it seeks to gauge whether nine interest rate increases in 13 months will be enough to prevent the fastest growth since 2007 from stoking inflation.
The seven-member board, led by bank chief Jose Dario Uribe, held the benchmark rate at 5.25 percent today, as forecast by 16 of 30 economists surveyed by Bloomberg. Fourteen analysts, including the three with the most accurate forecasting record in Bloomberg surveys, expected a 0.25-point increase. The bank last kept the rate unchanged in December.
“The central bank seems more comfortable with the way inflation and inflation expectations are going, and more comfortable with the fact that they’re converging to mid- target,” said Katia Diaz, a Latin American economist at 4Cast Inc. in New York, who correctly forecast today’s decision. “If there’s any change to the inflation outlook, then we can look at a resumption of rate hikes.”
Colombia has defied a global trend for lower rates, as record oil production and 22 percent credit expansion helped power 5.9 percent growth last year. Policy makers cited signs that growth slowed in the first quarter of the year and falling inflation expectations in their decision to hold rates.
“The inflation risk coming from expectations have moderated,” the bank said in its statement. “The risks from the behavior of demand and credit remain.”
‘Seeing the Impact’
The central bank will pause now to see how the economy reacts to the 2.25 percentage points of rate increases since February 2011, said Nader Nazmi, senior Latin America economist at BNP Paribas, who correctly forecast today’s decision.
“They have already done a lot of hard work, and we are going to start seeing the impact of some of these interest rate hikes on the economy in the form of a moderation in growth,” Nazmi said, speaking by phone from New York before the rate decision. “We have seen recently some sign of growth moderation, inflation expectations have trended down, and inflation has also moved lower, so the central bank can afford to wait before hiking again.”
Industrial output rose 2.4 percent in January from a year earlier, its slowest growth in nine months. BNP Paribas expects one more quarter-point rate increase this year.
Consumer prices rose 3.55 percent in the 12 months through February, from 3.54 percent a month earlier.
In October, annual inflation breached the upper limit of the central bank’s target range for the first time since 2009. Colombia targets inflation of 3 percent, plus or minus one percentage point.
Colombian officials have repeatedly voiced concern over the pace of credit growth, which rose 22 percent in January from a year earlier.
Household debt has increased to close to record levels as a share of income, while the quality of consumer loans has deteriorated, central bank co-director Carlos Gustavo Cano said last week. Cano said both trends are “disturbing”.
The peso has strengthened 10.1 percent this year, to 1760.27 per dollar, the second-biggest gainer of the 31 most traded currencies tracked by Bloomberg.
Unlike Brazil, where central bank president Alexandre Tombini is slashing borrowing costs to try to revive growth and prevent the appreciation of the real, Colombian policy makers are more focused on their inflation target, said Juana Tellez, chief economist at Bogota-based BBVA Colombia.
“They are giving priority to inflation, as they have done historically, and they want to get inflation to 3 percent,” Tellez said in a telephone interview before the rate decision. “This a very important contrast with Brazil.”