Cardenas Says Colombia Should Grow at Potential After March Cut

Colombian policy makers’ half-point interest rate cut last month should enable the economy to recover its maximum sustainable growth rate of 4.8 percent per year, Finance Minister Mauricio Cardenas said.

“With current conditions, the economy should be able to recover its growth path of 4.8 percent, but this evaluation could change. One can never say never,” Finance Minister Mauricio Cardenas told reporters in Bogota. “We’re in a situation where, with last month’s cut, and with conditions as they stand, everything ought to lead to the potential growth rate.”

The central bank has cut its policy rate two percentage points to 3.25 percent since June, the lowest among major Latin American economies, as growth cooled and the inflation rate fell below the lower end of its target range. Traders have stepped up bets on interest rate cuts over the last week, after central bank Governor Jose Dario Uribe said interest rate decisions will depend how far inflation strays from its target, and consumer prices rose less than expected.

Inflation accelerated to 1.91 percent last month, lower than the 1.99 percent median forecast of 24 analysts surveyed by Bloomberg, from a six decade-low of 1.83 percent in February. Colombia targets inflation of 3 percent, plus or minus one percentage point.

“Any level between 2 percent and 4 percent is OK,” Cardenas said today.

Yields on Colombia’s peso bonds maturing in May 2014 have fallen 6 basis points, or 0.06 percentage point, this month to 3.55 percent. The peso has weakened 2.8 percent this year, the biggest drop among major Latin American currencies after the Venezuelan bolivar and the Argentine peso.

“The economy will tell us how low to cut interest rates,” Uribe told bankers in Medellin last week. “The interest rate decision depends how far inflation deviates from its target.”

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