Colombia Central Banker ‘Comfortable’ With Lengthy Rate Hold

Colombian central bank co-director Carlos Gustavo Cano said an interest rate cut isn’t warranted amid rising inflation expectations and that he’d be “comfortable” to leave the policy rate unchanged for a prolonged time.

“In any change in monetary policy posture, inflation expectations are key,” Cano said in phone interview Monday from Bogota. “That they’ve gone up a little, and are in the upper half of the target range, means that no reduction in rates is merited.”

Cano and the other six members of the central bank’s board voted unanimously at their January meeting to hold the policy rate at 4.5 percent for a fifth straight month. Amid uncertainty over oil prices, internal demand and the peso, Cano said he’d be comfortable with the current rate for “a prolonged period that could go a bit beyond the middle of the year.”

The price on peso bonds due June 2016 fell 0.07 centavo to 103.403 centavos per peso at 10:11 a.m. in Bogota, the biggest decline since Dec. 29, according to central bank data. Yields rose 5 basis points, or 0.05 percentage point, to 4.59 percent, as traders pared bets on interest rate cuts.

Analysts regard Cano as one of the policy makers most inclined to argue for looser policy to encourage growth, said Camilo Perez, chief economist at Banco de Bogota.

“This confirms that over the next three or four months it’s probable that he’ll want to keep rates unchanged,” Perez said in a phone interview. “This means that it’s virtually guaranteed that the board won’t cut rates, since Cano is its most dovish member.”

Neutral Rate

The current policy rate is close to its so-called “neutral” level, at which it neither stimulates nor cools growth, Cano said. The central banker added that his comments don’t necessarily reflect the views of the other board members.

Consumer prices rose 3.66 percent last year, the fastest rate of increase since 2011. Twelve-month inflation expectations rose to 3.28 percent in the central bank’s January survey of economists, from 3.2 percent a month earlier. Cano forecasts that inflation will slow to about 3.2 percent by the year-end, and be back at the mid-point of the target range in 2016.

Central bank Governor Jose Dario Uribe said Jan. 30 that the bank had cut its forecast for 2015 growth to 3.6 percent, from 4.3 percent, due to the drop in oil prices. Crude, which accounts for about half of Colombian exports, has more than halved in price since June.

Last year, Colombia’s economy expanded 4.8 percent, according to a Bloomberg survey of economists, making it the fastest-growing major Latin American economy. Even if there are “abrupt” changes in the economic scenario, growth won’t fall short of 3 percent in 2015, Cano said.

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