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Colombia’s Excess Credit Growth Concern Easing, Uribe Says

Dec. 13 (Bloomberg) -- Colombian central bank Governor Jose Dario Uribe said that concern over excess consumer credit expansion has “diminished significantly” after loan growth slowed this year.

“We don’t have a target for credit growth, but we don’t want it to continue growing at the pace it was in 2011,” Uribe said in an interview at the bank’s Bogota headquarters yesterday. “In the last three months annualized, it is growing at around 12 percent to 13 percent. This is a level that, without doubt, gives us calm, given that it was growing at 25 percent for a prolonged period.”

The central bank board voted 4-3 last month to cut the benchmark interest rate to 4.5 percent, its lowest level in a year, as industry contracted and inflation expectations fell. Only two of 33 analysts surveyed by Bloomberg had forecast the reduction. Colombia has lowered borrowing costs at three of its last five meetings, the only major economy in the Americas other than Brazil that has cut rates in the past six months.

The central bank no longer talks of the threat of overheating, financed by excessive consumer credit, which led to nine rate increases in the 12 months through February.

After expanding more than 25 percent year-on-year between August and December last year, consumer credit growth slowed to 19 percent in September, its seventh consecutive decline.

Falling Prices

A surprise drop in Colombian consumer prices last month means inflation may end next year slightly below the 3 percent mid-point of its target range, Uribe said.

The bank could trim its 2013 forecast after measures of so-called “core” inflation, which exclude volatile food and fuel prices, slowed, he said. Policy makers’ current forecast is for prices to rise 3 percent next year, in line with the target.

“Partially, it was related to food prices and regulated prices, but not just to these products,” Uribe said. “All the measures of core inflation fell. We’d expected them to fall, but not by this much.”

Annual inflation slowed to 2.77 percent in November, its lowest rate since 2010, and less than all 26 forecasts in a Bloomberg survey, whose median prediction was for prices to rise 3.1 percent from a year earlier.

‘Slightly Below’

“Our forecast is that inflation ends next year at 3 percent or, with this new data and with revisions, very probably that will give us forecasts for next year below 3 percent,” Uribe said. “It could be slightly below 3 percent, taking into account the latest information.”

The drop in the inflation rate last month shows that the central bank was right to cut interest rates on Nov. 23, Finance Minister Mauricio Cardenas said on Dec. 5.

Colombia targets inflation of 3 percent, plus or minus one percentage point. In November, the country’s inflation rate was the lowest in the region after Chile’s and Peru’s, and the closest to target of any major Latin American economy. The 0.14 percent monthly drop, the biggest in more than two years, was led by a 0.49 percent reduction in food prices. Transport costs slid 0.09 percent.

One measure of core inflation tracked by the central bank, which excludes food staples, public services and fuel, slowed to 3.15 percent in November, its lowest rate since March, from 3.28 percent in October. Recent declines in inflation in Peru and Chile also surprised analysts, Uribe said.

Growth Outlook

The economy will grow 4.5 percent this year, down from 5.9 percent in 2011, according to the median estimate of analysts surveyed by Bloomberg. That would be faster than Brazil and Mexico, the region’s largest economies, while trailing Peru and Chile.

Colombia’s potential gross domestic product growth rate, or the pace it can expand without inflation accelerating, is somewhere between 4.2 percent and 5.3 percent, Uribe said.

Financial markets are returning to normal after a temporary drop in liquidity caused by the implosion last month of Interbolsa SA’s brokerage, the largest in the country, Uribe said.

The central bank opened a so-called “liquidity window” to lend to brokerages to avoid disruptions in financial markets following Interbolsa’s collapse. This measure gave “enormous tranquility” to the market, even though brokerages have borrowed “practically nothing” via the facility, Uribe said.

Learning Curve

“What happened with Interbolsa should cause reflection and learning but, without doubt, it’s a special case, with specific conditions in the functioning of that company,” Uribe said. “The only good thing about crises is that you learn things.”

The central bank cut its policy rate last month, citing weak global growth, a decline in industrial output and a high level of “risk perception” among Colombians. Uribe will raise the rate in October next year, according to the most frequent forecast in a central bank survey of 39 economists published yesterday.

The peso gained 0.1 percent to 1796.75 per U.S. dollar at 2:53 p.m. in Bogota, and has gained 7.9 percent this year, the sixth-biggest appreciation of 171 currencies tracked by Bloomberg. The yield on Colombia’s 10 percent debt due in July 2024 fell four basis points, or 0.04 percentage point, to 5.97 percent.

To contact the reporters on this story: Matthew Bristow in Bogota at mbristow5@bloomberg.net; Oscar Medina in Bogota at omedinacruz@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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