Colombia Leaves Key Rate on Hold as Growth and Inflation Pick Up
Banco de la Republica, led by Governor Jose Dario Uribe, held its benchmark interest rate at 3.25 percent, as forecast by all 29 analysts surveyed by Bloomberg.
The central bank cut interest rates 2 percentage points over its past 13 meetings as the inflation rate fell to its lowest level since 1955 and growth cooled. Now, with surging consumer confidence driving a recovery in domestic demand, and inflation picking up, policy makers will probably start to raise rates before the end of the year, said Daniel Lozano, head analyst at Bogota-based brokerage Serfinco.
“As inflation accelerates, and if the economy picks up as we expect, the central bank could raise the interest rate 25 basis points in November or December,” Lozano said in a phone interview before today’s decision.
Consumer confidence rose to its highest level in more than a year in June, while retail sales leaped 6.5 percent in May from the year earlier, the biggest increase in six months. Central bank co-director Adolfo Meisel said in a July 9 interview that consumer and business expectations are “very favorable” for the second half of the year.
Policy makers’ next move will be to raise its benchmark rate by half a percentage point in the first quarter of 2014, according to the most recent central bank survey of economists.
The economy is also receiving a boost from a spike in the price of crude oil, which represented more than half of Colombian exports last year. Crude rose above $100 a barrel for the first time in more than a year last month.
Annual inflation accelerated to 2.16 percent in June, its fastest pace in six months, from 2.0 percent in May. This could be an early sign of a recovery in growth, central bank co-director Ana Fernanda Maiguashca said July 8.
In February, annual inflation slowed to 1.83 percent, its lowest level since 1955. Colombia aims for annual consumer price rises of 3 percent, plus or minus one percentage point.
The economy grew 2.8 percent in the first quarter from a year earlier, trailing expansion of 4.1 percent in Chile and 4.8 percent in Peru, while outpacing Brazil’s 1.9 percent and Mexico’s 0.8 percent.
In April President Juan Manuel Santos announced a 5 trillion-peso ($2.6 billion) stimulus plan, of which $900 million will be spent in 2013. The measures, which include an expansion of a housing program for low-income families and cheaper energy costs, will boost 2013 growth by 0.7 percentage point, according to the Finance Ministry.
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