Colombian Central Bank Says Peso Drop May Boost Inflation

The plunge in the Colombian peso may stoke higher consumer price increases and inflation expectations, the nation’s central bank said.

“If this depreciation persists, it may be transmitted in a greater way to internal prices, and generate higher inflation expectations,” policy makers said in the minutes to their Nov. 28 board meeting, published today. “At this time, inflation expectations are stable, and somewhat above 3 percent.”

The peso has weakened 22 percent over the last six months, the most after Russia’s ruble among major emerging market currencies tracked by Bloomberg. That is helping to soften the impact on the Colombian economy of a slump in crude prices, policy makers said.

“As was to be expected, the peso has devalued, which can mitigate the effects of the weakness in external factors on the output gap, and impact the rate of short-term inflation,” policy makers said in the minutes. “The floating exchange rate has shown itself to be an efficient mechanism that absorbs external shocks.”

Policy makers will leave the benchmark policy rate unchanged at 4.5 percent for a fourth straight month at their Dec. 19 board meeting, according to 17 of 18 analysts surveyed by Bloomberg. One analyst forecasts a quarter-point cut.

Benchmark U.S. oil prices extended losses below $58 a barrel today as the International Energy Agency cut its global demand estimate. Oil prices have collapsed about 20 percent since Nov. 26, the day before the Organization of Petroleum Exporting Countries agreed to leave its production limit unchanged at 30 million barrels a day.

Oil accounts for about half of Colombia’s exports and foreign direct investment.

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