Colombian central bank co-director Adolfo Meisel forecasts inflation will slow in the second half, two weeks after some policy makers voted at their July 31 meeting to raise borrowing costs as the peso’s plunge fans consumer prices.
“The interest rate hasn’t been raised because it is still seen that there is a margin and that things in terms of inflation will improve in the second half,” Meisel said in a phone interview Wednesday.
Weakening internal demand and lower food prices will help contain consumer price increases, according to Meisel. He forecasts inflation will end this year around 4.5 percent and slow to close to the mid-point 3 percent target in 2016.
The Colombian currency’s plunge toward an all-time low is creating divisions within the central bank. Meisel’s comments echo those of Finance Minister Mauricio Cardenas, who chairs the policy meeting, and has said slowing growth will limit consumer price increases. Bank Governor Jose Dario Uribe and co-directors Cesar Vallejo and Carlos Gustavo Cano have voiced concern the weakening peso risks stoking inflation expectations and delaying the return of inflation to the target.
Policy makers are taking into account “the risks that we would contribute to a greater deceleration” by raising borrowing costs, Meisel said.
The board last month left the rate unchanged at 4.5 percent “to have more information and see how things evolve,” he said. The board’s next meeting is scheduled for Aug. 21.
The peso tumbled 36.2 percent in the past year, the worst performance after the Russian ruble among 31 major currencies tracked by Bloomberg.
The Colombian currency rose 0.1 percent to 2,939.59 per dollar at the close in Bogota. Earlier this month it approached the all-time low of 2,980 that was reached 12 years ago.
To stem a selloff in their currencies, policy makers from Mexico to South Africa have stepped up intervention, raising interest rates or signaling an end to monetary easing.
Meisel said the peso’s drop is healthy and sees no need to intervene.
The peso’s depreciation is in line with the plunge in oil prices and will help exports, industry, agriculture and tourism, he said.
“I’d rule out an intervention,” Meisel said. “What has happened in the currency market is very good, is healthy, and responds to fundamentals.”