Colombia Holds Benchmark Rate at 4.5% Amid Inflation Surge

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Colombia’s central bank kept borrowing costs unchanged for an eighth straight month as consumer prices rise at the fastest pace in six years while the nation’s growth prospects dim.

The seven-member board voted unanimously to hold the benchmark rate at 4.5 percent, central bank Governor Jose Dario Uribe told reporters after the meeting. The decision was forecast by all 33 analysts surveyed by Bloomberg.

“The available data suggest a deceleration in consumption and of investment in some sectors,” Uribe said, reading the policy statement. The central bank “reaffirms its commitment to maintain inflation and inflation expectations anchored at the target, acknowledging that there is a transitory increase in inflation,” he added

A surge in food prices and a plunge in the peso have stoked the fastest inflation since 2009, deterring policy makers from acting to reverse a slowdown in growth. With inflation expectations under control and Uribe indicating the oil shock is affecting the economy at the speed expected by the central bank, policy makers have no need for rate moves for now, according to Daniel Escobar, head analyst at Global Securities brokerage.

“The central bank is taking a neutral stance, signaling they likely won’t make a move in the near future,” Daniel Escobar, head analyst at Global Securities brokerage, said in a phone interview from Bogota. There is a “slight” chance policy makers will cut the key rate toward year end should the economy decelerate more than expected and only if inflation drops below 4 percent, Escobar said.

Oil, Economy

Annual inflation accelerated to 4.56 percent in March, the highest rate after Brazil among the region’s major inflation-targeting economies. The central bank targets inflation of 3 percent, plus or minus one percentage point.

Uribe said the oil shock is hitting the economy at the expected magnitude and speed. Economists surveyed by Bloomberg cut their forecast for 2015 growth to 3.6 percent from 4.8 percent over the past six months, as prices fell for Colombia’s oil, coal, coffee and gold. That would be Colombia’s weakest expansion since 2009, while outpacing the 0.9 percent growth that the International Monetary Fund forecasts for Latin America and the Caribbean as a whole.

Consumer confidence collapsed to its lowest in six years last month, while retail sales and industrial output were weaker than expected. The peso has fallen 21 percent over the past year as prices fell for crude, Colombia’s biggest export.

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