Colombia’s widening current account deficit is preventing the central bank from acting to stimulate the slowing economy, central bank co-director Ana Fernanda Maiguashca said.
The economy will grow at less than its full capacity this year, which would normally open the possibility for monetary stimulus were policy makers not concerned by the deficit, Maiguashca said Friday in an interview in Riviera Maya in Mexico.
“The reason I believe we don’t have any kind of counter-cyclical space for monetary policy to act any further is because the current account deficit had widened so much in 2014,” Maiguashca said. “We are not using that stance because we have an external vulnerability, which is an important factor to consider in a small open economy.”
Maiguashca and her colleagues on the seven-member board will leave the policy rate unchanged at 4.5 percent for the rest of the year, according to the median estimate of the most recent central bank survey of economists. That’s a level that is stimulating the economy, although that effect will diminish during the year as inflation slows, increasing borrowing costs in real terms, she said.
The deficit widened to 5.2 percent of gross domestic product last year, the most in more than a decade, from 3.4 percent in 2013, as prices fell for the nation’s oil and coal exports. In the minutes to its April policy meeting published Friday in Bogota, the central bank forecast that the deficit will widen to 5.3 percent this year.
Annual inflation unexpectedly accelerated to 4.64 percent in April, its fastest pace since 2009, as food prices surged amid unfavorable farming weather and import prices were boosted by the 19 percent fall in the peso over the last 12 months.
“We have inflationary pressures. They have not contaminated expectations for 2016, but that remains to be seen,” Maiguashca said. In the minutes, the central bank emphasized the importance that “medium term” inflation expectations remain close to the 3 percent target.
Inflation will slow to below 4 percent by the end of the year, and will return to target next year, Maiguashca said.
The central bank cut its official 2015 growth forecast for a second time this year, to 3.1 or 3.2 percent, from 3.6 percent. That would be the nation’s slowest expansion since 2009, while outstripping the 0.9 percent growth that the International Monetary Fund forecasts for the whole of Latin America and the Caribbean.
Last year the economy expanded 4.6 percent, outpacing growth in Brazil, Mexico, Chile and Peru.