April 16 (Bloomberg) -- Colombia’s inflation rate, the lowest in Latin America after Chile’s, will remain below the midpoint of its target range until next year, central bank Governor Jose Dario Uribe said.
Consumer prices will probably rise less than the 3 percent target this year because of weak internal demand, the peso appreciation at the start of 2012 and one-time factors such as tax changes and cheaper food, Uribe said yesterday in an interview in Huila province. Inflation was 1.9 percent in March.
“We expect, as does the market, that inflation will end the year a bit below 3 percent, and that’s one of the elements we took into account in the interest rate cuts that began in July,” Uribe said. “Our target is 3 percent, and we want inflation returning there in a prudent amount of time.”
Uribe’s central bank unexpectedly stepped up the pace of interest rate cuts at its March policy meeting, saying that previous stimulus was reaching the economy slower than it wanted. The government of President Juan Manuel Santos yesterday announced a package of stimulus measures, aimed at boosting growth by about 1 percentage point this year.
Growth will probably pick up in the second half of the year, Uribe said. The half-point interest rate cut to 3.25 percent in March aimed to boost growth to its potential rate, he said.
“That was the objective of this cut of an additional 50 basis points on top of our previous reductions, which is to get inflation to 3 percent and to help get growth to its potential rate,” Uribe said.
Finance Minister Mauricio Cardenas said yesterday that the economy can grow at an annual rate of 4.8 percent without generating inflation.
Gross domestic product expanded 4 percent last year, slower than Chile and Peru, and down from 6.6 percent growth in 2011. Expansion in the first quarter was “in some sectors not positive,” Uribe said.
Last month’s 1.9 percent annual rise in consumer prices lagged economists’ forecasts for a fifth straight month. Slowing inflation has prevented real interest rates paid by borrowers from falling in line with the bank’s policy rate, Uribe said.
“In terms of nominal rates, the reduction in interest rates has been transmitted in a way that wasn’t very different from other cutting cycles,” Uribe said. “In terms of real interest rates, the transmission has been less because inflation has slowed.”
Policy makers cited “slower than desirable” interest rate transmission in the statement accompanying their half-point rate cut last month.
Bancolombia, the country’s largest bank, said April 10 it would cut the interest rate on 1.6 million of its credit cards by 2 percentage points. The effective annual rate on Bancolombia’s Classic, Gold and Platinum cards fell to 28.9 percent from 30.9 percent, according to a report on its website.
Asked whether the move could cause other banks to follow suit, Uribe said it “very probably” would.
“Competition between banks is welcome when, of course, the competition comes with a good calculation of risk,” Uribe said.
The central bank is “permanently monitoring” the housing market for signs of a bubble, Uribe said. Home prices rose 71 percent in the third quarter from a decade earlier, according to the bank’s inflation-adjusted used housing price index.
“Home prices are historically high in some cities, but to say from that there is a bubble is very difficult,” Uribe said. “We believe that at the moment there isn’t a bubble, but I repeat that this is a theme that we constantly monitor.”
Credit quality is currently “very good” and the financial system is “strong, without a doubt”, Uribe said.
The government yesterday unveiled a 5 trillion peso ($2.7 billion) stimulus plan to revive the country’s industrial and agricultural sectors. The measures included subsidized mortgages for middle-income families, an expansion of a subsidized housing program for low-income families, cheaper energy costs, tariff reductions to cut company costs and measures to reduce loading times at ports.
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