April 19 (Bloomberg) -- Colombia’s central bank will be “very alert” to the impact of the government’s $2.7 billion stimulus plan announced this week as it decides on the direction of interest rates, bank Governor Jose Dario Uribe said.
The government’s package of measures adds “an extra impulse from the fiscal side to the monetary policy impulse,” Uribe said today in an interview in Washington, D.C.
Asked whether the government’s “Plan to Boost Productivity and Employment,” might lead to an early withdrawal of monetary stimulus, Uribe said, “We’ll see, because some things at the moment are intentions. We are going to be very alert to see if, effectively, they materialize and what the impact will be.” Uribe said that the plan won’t change the government’s fiscal targets.
Uribe’s central bank has cut its policy rate two percentage points in the past nine meetings, as growth cooled and the inflation rate fell to its lowest level in six decades. Colombian President Juan Manuel Santos this week unveiled a program that included an expansion of a housing program for low income families, subsidized mortgages and cheaper energy costs, which he said would boost gross domestic product growth by about 1 percentage point.
Yields on the government’s peso bonds maturing in 2014 rose four basis points, or 0.04 percentage point, to 3.54 percent. The peso strengthened 0.2 percent to 1,837.08 per U.S. dollar.
Policy makers will probably now hold interest rates while they gauge the impact of the half-point interest rate cut in March, as well as the effects of the government’s plan, said Camilo Perez, chief economist at Banco de Bogota.
“This reinforces our expectations that they will hold interest rates unchanged in April, and for the rest of the year,” Perez said today, in a telephone interview from Bogota.
Last month’s 1.9 percent annual increase in consumer prices lagged economists’ forecasts for a fifth month. GDP expanded 4 percent in 2012, slower than Chile and Peru, and down from 6.6 percent in 2011. Uribe reiterated that he expects growth of about 4 percent this year.
The central bank will hold the overnight rate at 3.25 percent at its April 26 policy meeting, according to eight of 14 analysts surveyed by Bloomberg. Six analysts forecast a quarter-point cut.
“We know very well that we have to be very alert to identify the moment when it’s necessary to start to withdraw this monetary stimulus,” Uribe said.
Cheaper oil and coal, a slowdown in Colombian GDP growth, lower interest rates and increased intervention from the central bank have all tended to weaken the peso, even as stimulus from the Bank of Japan increases inflows to emerging markets, Uribe said.
Fundamentals don’t support a Colombian peso at the levels it was at the start of the year, of close to 1,750 per dollar, Uribe said. The Andean nation won’t increase its holdings of gold reserves, since the metal has “tremendous volatility” which makes it unsuitable for the central bank to hold, Uribe said.
The bank currently holds about 1 percent of its reserves in gold, mostly bought from local producers a long time ago, Uribe said.
Finance Minister Mauricio Cardenas told reporters in Washington, D.C. today that the currency’s equilibrium rate is between 1,900 and 1,950 per dollar.
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