Colombia Raises Main Rate to 5.25% to Slow Credit-Fueled Economic Growth
Colombia’s central bank raised borrowing costs for a second straight month in a bid to stabilize the fastest economic growth since 2006 and slow inflation toward the mid-point of policy makers’ target amid a surge in lending.
The seven-member board, led by bank chief Jose Dario Uribe, raised the overnight interest rate by a quarter point to 5.25 percent today, as forecast by 22 of 36 economists surveyed by Bloomberg. Fourteen analysts expected no change. The decision wasn’t unanimous.
“The latest information suggests that in the fourth quarter of 2011 the Colombian economy continued to show strong momentum and that this performance has continued in early 2012. Both exports and imports of capital goods continued to grow at high rates in December,” policy makers said in their statement posted on the central bank’s website.
Speaking after the decision in Bogota, Colombia Finance Minister Juan Carlos Echeverry said the economy grew “very close” to 6 percent in 2011 and that long-term growth of 5 percent to 7 percent is “reasonable.”
Policy makers also extended a program of daily purchases of a minimum of $20 million in auctions begun Feb. 6 to Aug. 4 or later while taking no additional measures to curb the peso’s gains.
Echeverry said the “expansionist” policies of the U.S. are a factor behind the peso’s rally and that G-20 leaders plan to discuss U.S. policies. He said he will attend the G-20 summit in Mexico this weekend.
Colombia’s policy makers in recent months have repeatedly voiced concern over the pace of credit growth in South America’s fourth-biggest economy.
The central bank in January cited a 25 percent climb in consumer credit in December, “strong” growth and inflation expectations near the upper end of the bank’s target range in explaining their quarter-point rate increase, which surprised 31 of 32 economists surveyed by Bloomberg.
Loan growth coupled with a surge in housing prices suggests Colombia may be at “risk of an asset price bubble in the real estate sector,” Daniel Volberg, an economist at Morgan Stanley in New York wrote in a report this month.
Total lending rose to 215.3 trillion pesos ($121 billion) in December, up 22 percent from 175.9 trillion pesos in the same month a year earlier.
Policy makers forecast gross domestic product in Colombia may be as high as 6 percent this year after a similar expansion last year. GDP rose 7.7 percent in the third quarter from a year earlier, which even surprised the bank’s board, according to last month’s statement.
The economy last expanded at a faster pace in the fourth quarter of 2006 when GDP rose 7.73 percent.
A government report yesterday showed that retail sales in December rose 7.5 percent from a year earlier, higher than all but two of 17 forecasts of economists surveyed by Bloomberg.
Annual inflation slowed to 3.54 percent in January after breaching the upper limit of the 2 percent to 4 percent target range in October for the first time since 2009.
Policy makers are focused on reaching the mid-point of the target, Finance Minister Juan Carlos Echeverry, who is also president of the central bank board.
Annual core inflation indicators eased in January, though they remained above the bank’s mid-point target, according to central bank statistics. Annual inflation in housing prices grew to 4.06 percent in January, up from 3.3 percent in August, according to government statistics.
Peso, ‘Political Pressure’
The government forecasts foreign direct investment will rise to $16 billion in 2012, from 2011’s record $14.5 billion, as companies search for oil, coal and gold in areas that were once overrun by rebel and considered too dangerous to explore.
Colombian policy makers are also studying new measures to slow consumer credit growth as a compliment to recent interest rate increases, central bank co-director Carlos Gustavo Cano said in a Feb. 10 interview.
Colombia may step up measures to weaken the peso, which has gained 9.2 percent this year, if it continues to appreciate, said Andres Pardo, the head analyst at financial services holding company Corp. Financiera Colombiana, known as Corficolombiana.
This could include stepping up dollar purchases to $30 million or $40 million per day, or introducing curbs on lending in foreign currencies, Pardo said.
“There’s a lot of political pressure going on from the agricultural sector, from the export sector, pressuring the central bank to do more to fight the appreciation of the currency,” Pardo said, speaking by phone from Bogota. “If it gets to a point where it gets really, really appreciated, they might impose some sort of capital controls.”
The peso was little changed at 1775.75 per dollar today from 1776.44 yesterday. Its 5.4 percent gain in the last four months is the best performance of 25 emerging-market currencies tracked by Bloomberg and its 2012 gain is fifth best.
To contact the reporters on this story: Blake Schmidt in Bogota at email@example.com.