Cardenas Says Faster Colombia Growth Not Stoking Inflation

Colombia’s Finance Minister Mauricio Cardenas said faster economic growth isn’t generating inflationary pressures and that he doesn’t see the need for higher interest rates any time soon.

While growth will accelerate to about 5 percent in the second half of the year, the economy is still expanding below potential, Cardenas said in an interview in Washington yesterday. Strong demand in the construction and service industries, as well as a recovery in the farm sector, is offsetting slower export growth, he said.

Colombia’s economy expanded 4.2 percent in the second quarter from a year earlier, compared with the 3.4 percent median forecast of economists surveyed by Bloomberg. The central bank kept its benchmark rate unchanged in September for a sixth straight month. In August, a minority of policy makers voted to cut the rate, the lowest among major Latin American economies, arguing that growth was below its potential.

“There is no inflationary pressure at the moment,” Cardenas said. “We need to give the current policy stance some time.”

The prospect of rising interest rates in the U.S. and weaker global commodity prices will push the peso lower, requiring less intervention by the central bank, Cardenas said.

“The markets alone will generate the conditions for a larger depreciation of the currency,” he said.

Peso Decline

The peso weakened 0.1 percent to 1884.01 per dollar at 9:13 a.m. in Bogota, taking its decline against the U.S. currency to 6.2 percent this year. While the government doesn’t target a specific exchange rate, it has said it is comfortable with a range of 1,900 to 1,950 per dollar.

A weaker peso increases the competitiveness of Colombian exports, which stood at $4.98 billion in August, compared with estimates of $4.58 billion and $4.57 billion a year earlier.

A recent overhaul of payroll taxes and infrastructure projects worth $25 billion will help Colombia’s economy weather a less favorable global scenario, including tapering by the Federal Reserve, Cardenas said.

The planned sale of power company Isagen also will generate at least $3 billion in revenue, helping to finance a government infrastructure fund, Cardenas said.

Colombia raised the base price for its majority stake in Medellin-based Isagen to 3,178 pesos per share last month, from a minimum of 2,850 pesos set in July when the sale plan was disclosed. At the higher price, the government’s 57.66 percent stake would be worth 5 trillion pesos ($2.66 billion).

“We want strong competition that results in a higher price,” Cardenas said.

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