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Lowest CPI Since 1955 Lets Colombia Target Growth, Cardenas Says

The lowest inflation rate in six decades gives Colombian policy makers the freedom to focus on boosting economic growth, Finance Minister Mauricio Cardenas said.

Colombia has entered a “sustainable low inflation phase” which means policy makers can concentrate their efforts on getting growth to accelerate to its potential rate of 4.8 percent per year, Cardenas said in a March 5 phone interview.

Consumer prices rose 1.83 percent in February from a year earlier, the slowest pace since the government of dictator General Gustavo Rojas Pinilla in 1955, as food, clothing and entertainment costs fell. The median estimate of 23 analysts surveyed by Bloomberg was for inflation of 1.89 percent. Prices rose 0.44 percent from a month earlier.

“We’re not worried about inflation,” Cardenas said. “We can put our eyes now on the business cycle, and we can focus on monetary policy as an instrument to achieve potential growth.”

Colombia has cut its policy rate six times since June to 3.75 percent, the lowest among major Latin American economies, citing below-potential growth and slowing inflation. The central bank wants to get inflation back up to the midpoint of its target range over a “prudent” period of time, bank Governor Jose Dario Uribe said in a March 1 interview.

The central bank targets inflation of 3 percent, plus or minus one percentage point.

Venezuela Demand

The economy expanded 2.1 percent in the third quarter from a year earlier, the slowest pace in the Andean region. Banco de la Republica estimates the economy grew 3.3 percent to 3.9 percent last year, compared with 5.9 percent in 2011. Gross domestic product will increase 2.5 percent to 4.5 percent in 2013, according to the bank.

Cardenas, who traveled to Caracas yesterday hours before Venezuela announced the death of President Hugo Chavez, said policy makers will carefully monitor developments in their neighbor, which is the biggest importer of Colombian manufactures.

The central bank’s policy committee, which Cardenas chairs, cited “the risk of lower demand from Venezuela,” in the statement explaining their rate cut last month.

Yields on peso bonds due in 2024 have fallen 2.05 percentage point since June, to 4.962 percent, as growth and inflation slowed, and the government cut taxes on foreigners’ profits on local bonds.

The peso has weakened 2.5 percent this year, to 1809.75 per U.S. dollar, the biggest fall among major Latin American currencies after the Venezuelan bolivar.

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