Uribe Says Colombia Needs Bigger Stimulus If Shocks Persist

Colombia’s economy may need a larger dose of monetary stimulus if the slowdown in growth caused by weaker investment in housing and public works persists, central bank Governor Jose Dario Uribe said.

At the same time, if the shocks that caused the slowdown are short-lived, and the risk of a global economic meltdown recedes, the country will require only “modest” stimulus, Uribe said today in a presentation in Bogota.

“If, in the short term, these shocks reverse, in an international environment where the chance of a collapse is lower than it was some months ago, then the monetary stimulus required should be modest,” Uribe said in a presentation in Bogota today. “On the other hand, if these shocks show a longer persistence, and affect price formation and inflation expectations or spending decisions by households and businesses, the necessary monetary stimulus should be stronger.”

The central bank has cut interest rates “gradually” in recent months, as it monitored the risks of financial imbalances from excess consumer debt and home prices, Uribe said. Policy makers will cut their benchmark interest rate a quarter point for the sixth time since June at its Feb. 22 policy meeting, to 3.75 percent, according to all five analysts in a Bloomberg survey.

Rate Horizon

An attempt to get inflation back to the center of its target too quickly would risk an “abrupt” change in the monetary policy stance, which could cause excess and needless volatility in output and employment, Uribe said.

Colombian economic growth slowed to 2.1 percent in the third quarter, the slowest pace in the Andean region, as construction activity slumped. The unexpected slowdown in growth last year was “almost entirely” due to housing and public works, Uribe said.

Finance Minister Mauricio Cardenas said today that Colombia has room to continue cutting interest rates, after inflation slowed to the lower end of its target range.

“If you ask whether there is space to cut interest rates, my answer is categorically yes,” Cardenas told reporters in Bogota.

Bonds, Peso

Annual inflation eased to 2 percent last month, from 2.44 percent in December, the slowest pace since April 2010. Colombia has the lowest inflation rate after Chile among major Latin American economies.

Colombia will sell $600 million in foreign bonds in the remainder of 2013 after placing $1 billion of notes last month, Finance Minister Mauricio Cardenas told reporters in Bogota. The total is down 38 percent from the $2.6 billion the government had said in December it would issue in overseas debt.

Uribe said the probability that the peso is “misaligned” have risen from a few quarters ago. Some of Colombia’s exports such as coal and coffee have fallen, which should lead to a weaker equilibrium exchange rate, he said.

The peso has appreciated 26 percent since the start of 2009, the biggest gain among 25 emerging market currencies tracked by Bloomberg after the Chilean peso.

(Updates to add economists’ interest rate forecast in fourth paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE