Colombian 4% GDP Growth Exceeds 2012 Central Bank Forecast

Colombia’s economy grew more than forecast by the central bank last year on a fourth-quarter rebound in construction, reducing the odds of a fifth straight interest rate cut tomorrow. Bond yields rose.

Gross domestic product expanded 4 percent in 2012, the national statistics agency said in Bogota, compared with the central bank forecast of 3.3 percent to 3.9 percent. The economy grew 3.1 percent in the fourth quarter from a year earlier, exceeding the median forecast of 3 percent of 30 analysts in a Bloomberg survey.

“This was higher than the central bank expected,” said Camilo Perez, head analyst at Banco de Bogota. “This reduces the probability of a rate cut tomorrow from about 95 percent to about 70 percent.”

Policy makers have cut the benchmark interest rate six times since June, to the lowest in the region, citing slowing growth, a weak global economy and cooling inflation. The central bank has repeatedly said that the economy is expanding below its potential, after it slowed from revised growth of 6.6 percent in 2011. Finance Minister Mauricio Cardenas said March 5 that the economy can grow 4.8 percent a year without stoking inflation.

Colombia’s 2012 growth compares with 5.6 percent in Chile, and 0.9 percent in Brazil.

The yield on government peso bonds due May 2014 rose 15 basis points to 3.95 percent at 11:53 a.m. in Bogota. The peso weakened 0.1 percent to 1,820.78 per U.S. dollar.

Construction Boom

The lowest inflation rate in six decades frees policy makers to concentrate on boosting growth, Cardenas said this month.

The economy grew 1.8 percent from the previous quarter, led by a 10.6 percent increase in construction activity, and a 2.6 percent increase in mining. Construction contracted 9 percent percent in the third quarter, while mining contracted 1.6 percent.

Banco de la Republica will cut its policy rate a quarter point at its March policy meeting tomorrow, to 3.5 percent, according to 28 of 32 analysts surveyed by Bloomberg. Three forecast the central will keep borrowing costs unchanged. If they cut rates, policy makers will then probably hold the rate at 3.5 percent until the end of the year, Perez said.

Annual inflation slowed to 1.83 percent last month, its lowest level since 1955, and outside the 2 percent to 4 percent target range. Cardenas said yesterday he hopes the central bank will continue to reduce rates.

Exports grew 6 percent to $61 billion last year, compared with growth of 43 percent in 2011. The central bank has cited lower export growth in its decisions to cut interest rates.

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