Colombian Central Banker Cano Says Higher Rates `Imperative'

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  • Economy hasn't slowed enough to ease the pressure on inflation
  • Cano commented in an interview with Javeriana Radio Thursday

Higher interest rates in Colombia are “imperative” as slower growth fails to crimp inflation, central bank co-director Carlos Gustavo Cano said.

“We are suffering from high inflation, a deceleration less acute than expected, and a current account deficit that among economies of similar size to Colombia’s is one of the highest in the world,” Cano said in an interview with Javeriana Radio Thursday. “The deceleration in the economy hasn’t been sufficient to achieve macroeconomic equilibrium, and therefore an adjustment in interest rates is imperative.”

A majority of the bank’s seven-member board voted to increase the policy rate a quarter point to 5.50 percent at its November policy meeting last week, the third straight increase. The decision came after inflation accelerated to a six-year high of 5.89 percent in October as the El Nino weather phenomena increased the cost of food, a weaker peso pushed up import prices and demand remained robust amid the slump in oil prices.  

Colombia targets inflation of 3 percent, plus or minus one percentage point. Central bank Governor Jose Dario Uribe said last week that inflation will be back at its 3 percent target in about 24 months.

Gross domestic product is forecast to grow 2.9 percent this year, the slowest pace since 2009, while exceeding growth among other major Latin American economies, according to economists surveyed by Bloomberg.

The Colombian peso has weakened 28 percent in the past year, the most in emerging markets after the Brazilian real, amid a drop in oil, coal, gold and coffee prices.