Colombia Cites Improved Euro Area Economy in Rate Hold

Colombia’s central bank cited a lower risk of a deep recession in the Euro zone and the strong performance of the country’s construction sector in its decision to leave interest rates unchanged last month.

“The biggest risk to economic activity continues to be a strong recession in Europe,” the bank said in the minutes published on its website today. “It seems the probably of this has diminished due to the actions of the European authorities and the reactions of the markets in that continent.”

Colombia last month kept the benchmark interest rate at 4.75 percent for a second straight month, after policy makers judged that bond-buying plans by the U.S. Federal Reserve and European Central Bank will ease the risk of a global slump. Analysts expect the rate to remain at its current level through September 2013, according to the most frequent forecast in a central bank survey published Oct. 11.

Policy makers see that “the world economy is showing less to be worried about, while inflation remains at levels that are very stable, and very close to their target,” said Cesar Corredor an analyst at Banco de Bogota SA, the nation’s second-biggest bank.

Internal Demand ‘Dynamism’

Policy makers also revised their forecast for 2012 gross domestic product growth to 3.7 percent to 4.9 percent, from a previous forecast of 3 percent to 5 percent.

“The growth rate in 2012 will be satisfactory, taking into account the international situation, and GDP is close to its potential level,” the bank said in the minutes published on its website today. “The dynamism of internal demand, stimulated by, among other things, investment in construction and civil works, and by terms of trade, will continue to stimulate national income and employment.”

Policy makers also said that monetary policy needs to take into account the fast pace of home price increases and credit growth to “minimize risks of future imbalances in these variables.”

Interbolsa, Inflation

The collapse this month of Interbolsa SA (INTBOL)’s brokerage, Colombia’s biggest, won’t sway policy makers in interest rate decisions, Finance Minister Mauricio Cardenas said in a radio interview today.

Annual inflation slowed to 3.06 percent in October, the lowest rate in Latin America after Chile among the region’s seven biggest economies, from 3.08 percent in September. The central bank targets inflation of 3 percent, plus or minus one percentage point.

Gross domestic product grew 4.9 percent in the second quarter from a year earlier, the third-fastest expansion among Latin America’s seven biggest economies after Peru and Chile.

The economy in 2012 will probably expand toward the upper end of the bank’s 3 percent to 5 percent forecast, Uribe said last month.

The peso dropped 0.2 percent to 1,814.60 per U.S. dollar. The currency has gained 0.7 percent this week and has jumped 6.9 percent this year.

To contact the reporters on this story: Oscar Medina in Bogota at omedinacruz@bloomberg.net; Christine Jenkins in Bogota at cjenkins28@bloomberg.net

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net

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