Colombia Leaves Key Rate Unchanged at 3.25% as GDP Accelerates
Colombia kept borrowing costs unchanged for a sixth month as growth in South America’s fourth-biggest economy accelerates more than analysts estimated.
Banco de la Republica, led by Governor Jose Dario Uribe, held its benchmark interest rate at 3.25 percent, as forecast by 29 analysts surveyed by Bloomberg. Three predicted a 25 basis-point cut. The rate has only been lower once, when it was held at 3 percent from April 2010 to February 2011.
The central bank cut interest rates 2 percentage points in the nine months through March as industrial output contracted and consumer prices rose at the slowest pace in six decades. A faster-than-expected 4.2 percent economic expansion in the second quarter combined with quickening inflation reinforced the call of the majority of the seven-member central bank board who argued against additional interest rate cuts last month, according to Daniel Velandia, the head analyst at Credicorp Capital’s Colombia unit.
“The economy is gaining speed and inflation is on the rise,” Velandia said in a phone interview from Bogota. Second-quarter “growth was a big surprise. Under this scenario, it doesn’t make much sense to cut rates.”
At least two of the seven members of the bank’s policy committee voted for a rate cut last month, arguing that the economy is growing less than its full potential while inflation risks are low, according to the minutes published Sept. 13
Central bankers who voted to leave interest rates unchanged last month argued that they would have more information on economic growth and on U.S. monetary policy when they met again today, the minutes showed.
Second-quarter growth was up from 2.7 percent in the first quarter, the government said in a report published Sept. 19, and was more than the central bank’s forecast and the median estimate in a Bloomberg survey which both called for a 3.4 percent expansion.
A day after the gross domestic product report was published, data from the statistics agency showed industrial output unexpectedly rose 0.2 percent in July and retail sales increased for a ninth consecutive month.
Annual inflation quickened to 2.27 percent in August from a year earlier after the rate in February dropped to 1.83 percent, its lowest level since the 1950s. Colombia targets inflation of 3 percent, plus or minus one percentage point.
Policy makers’ next move will be to raise their benchmark rate by half a percentage point in the second quarter of 2014, according to the most recent central bank survey of economists.
GDP will climb 3.9 percent in 2013 and 4.5 percent next year after expanding an average of 4.7 percent over the past decade, according to analysts polled by Bloomberg.
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