Colombian policy makers are studying new measures to slow consumer credit growth as a compliment to recent interest rate increases, central bank co-director Carlos Gustavo Cano said.
The central bank is considering the use of so-called “macroprudential” measures, which have a faster impact than the 18-24 month delay associated with higher borrowing costs, Cano said in an interview in his Bogota office yesterday.
“The risk is overusing the interest rate when there’s uncertainty regarding the international environment,” Cano said. “You need to have specific instruments to control credit.”
Banco de la Republica on Jan. 30 unexpectedly raised its overnight lending rate a quarter percentage point to 5 percent, citing rapidly-expanding credit and the fastest economic growth since 2006. Colombia has raised the rate eight times since the beginning of last year, in contrast to other emerging markets such as Brazil and Chile, which are cutting borrowing costs to shield themselves from European debt turmoil.
Brazilian policy makers imposed restrictions on auto, personal and payroll loans in December 2010, before unwinding most of the measures in November when the economy showed signs of cooling. Brazil’s central bank said the measures were a “rapid and potent” method of containing demand, according to the minutes of its March policy meeting.
Cano’s comments and a recent paper published on the central bank’s web site point to a higher probability that policy makers will increase reserve requirements or adopt other measures to limit liquidity, Banco de Bogota SA, Colombia’s second-biggest bank, wrote in a report today.
Colombia’s policy makers in recent months have repeatedly voiced concern over the pace of credit growth in South America’s fourth-biggest economy.
Total lending rose to 213 trillion pesos ($120 billion) in November, up 22 percent from 174.3 trillion pesos in the same month a year earlier. Consumer loans grew 25 percent in December from a year ago, according to the central bank.
Minutes published today of the Jan. 30 meeting show an unidentified board member said additional measures are needed to cool lending.
“A Board Member deemed it appropriate to supplement the rate increase with some kind of macro-prudential measure aimed at accelerating the interest rate transmission on consumer credit dynamics,” according to the minutes.
The January rate increase, which provoked complaints from business leaders who said it would hurt exports by strengthening the peso, was followed four days later by the central bank’s announcement that it would purchase at least $20 million per day for at least three months starting Feb. 6.
Cano says Colombia shouldn’t be concerned by the peso’s appreciation against the dollar, and should instead focus on its value relative to regional peers such as Peru and Chile.
Colombia uses dollar purchases to correct currency “misalignments” compared to its neighbors, without trying to change its structural trend, Cano said.
The peso has appreciated 7.3 percent over the past three months, the best performance among a basket of 25 emerging-market currencies tracked by Bloomberg. It fell 0.4 percent to 1,784.15 per U.S. dollar today, from 1,776.45 yesterday.
Now is a “propitious moment” for the Andean nation to build up its international reserves, since they are insufficient to pay for eight to nine months worth of imports, the historically normal level, Cano said.