Colombia’s central bank kept interest rates unchanged today after second quarter growth surprised policy makers, while also pledging sustained dollar purchases through March to stem a rally in the peso.
The seven-member board, led by bank chief Jose Dario Uribe, voted to hold the overnight lending rate at 4.75 percent, as forecast by 22 of 34 analysts surveyed by Bloomberg. Twelve expected a third straight quarter-point cut. The bank’s board also re-elected Uribe for a third four-year term beginning Jan. 4, 2013.
Growth in the second quarter “exceeded the range estimated by the technical team,” policy makers said in their statement posted on the central bank’s website. “This underestimate was due to higher-than-projected growth in domestic demand.”
The Colombian currency has appreciated 7.7 percent this year, the fourth-best performance against the dollar among the 31-most traded currencies tracked by Bloomberg worldwide. The Treasury began a program of dollar purchases in August parallel to the central bank’s in an effort to curb the rally and continued to do so even after Banco de la Republica stepped up its own intervention last month.
Uribe said the decision to hold the rate wasn’t unanimous while policy makers were agreed on extending dollar purchases.
Banco de la Republica will buy a minimum of $3 billion between Oct. 1 and March 29, in amounts of at least $20 million per day, central bank chief Jose Dario Uribe said.
At its August meeting, the central bank committed to increase its daily dollar purchases to an average of $28 million per day through the end of September, from a minimum of $20 million per day previously. The dollar purchases had been scheduled to end Nov. 2
“Together with the Treasury’s purchases, it will lead the market to bet less on the peso’s appreciation,” said Camilo Perez, the head analyst at Banco de Bogota, the nation’s second-biggest bank, who correctly forecast today’s rate decision. “It’s going to be more difficult for the peso to strengthen.”
Some traders had bet on a rate cut, so the rate hold could cause a “jump” in local bond yields, Perez said in a telephone interview from Bogota.
The Colombian economy grew 4.9 percent in the second quarter from a year earlier, beating the forecasts of all 29 analysts surveyed by Bloomberg, whose median forecast was for 4.2 percent growth.
The economy’s speed also surprised some members of the central bank’s board. In the first two weeks of September, co-directors Juan Pablo Zarate and Carlos Gustavo Cano both forecast second quarter growth of 4.2 percent.
“What need is there to stimulate more an economy that’s growing close to 5 percent?” said Julian Marquez, an analyst at Interbolsa SA brokerage in Bogota, in a telephone interview before the rate decision. “It’s better to have the ammunition stored for when there’s a big shock, rather than to have fired it when it wasn’t necessary.”
In September, annual inflation will fall below 3 percent for the first time in 17 months, according to a Bloomberg survey of 13 analysts, whose median forecast was for consumer prices to rise 2.97 percent.
Uribe last month told lawmakers that inflation may end 2012 “slightly below” the mid-point of its target range of 3 percent, plus or minus one percentage point.
In the days before the policy meeting, Finance Minister Mauricio Cardenas argued that there were “good reasons” for the central bank to continue to cut interest rates to offset the global slowdown, and said rate cuts would also help curb the peso’s appreciation in the face of QE3.
The yield on the government’s 10 percent peso-denominated bonds due in July 2024 rose one basis point, or 0.01 percentage point, to 6.35 percent, according to the central bank. Yesterday it fell to 6.34 percent, the lowest closing level since the debt was first sold in 2009. Colombia’s bond and currency market closed before the central bank’s announcement.