New Colombia Central Bank Chief Seeks to Calm Autonomy Fears

  • Nomura says Echavarria’s proximity to Santos is a concern
  • Echavarria says he’ll do what’s needed to meet inflation goal

Colombia’s new central bank chief says concern over the institution’s independence are misplaced, and said policy makers will do what it takes to hit the inflation target.

“In this bank we’ll do what’s needed, independently of what the government thinks,” said Juan Jose Echavarria, who was elected governor by the central bank board on Monday.

Echavarria, 64, is a close ally of President Juan Manuel Santos and was an adviser on economic affairs in Santos’s 2014 re-election campaign. In a report published today, Nomura Holdings Inc. said this could interfere with the perception of the bank’s independence, especially given that Santos recently called for rate cuts, and that Finance Minister Mauricio Cardenas sits on the bank’s policy committee.

Deutsche Bank said in a report that Echavarria’s “greater concern for economic growth sustainability and more eclectic previous experience in trade, agriculture and fiscal policy” will make him more dovish than Uribe.

The yield on Colombia’s local government peso bonds, or TES, due 2019 fell 8 basis points to 6.62 percent when the market opened Tuesday.

At a news conference in Bogota on Monday, Echavarria told reporters that growth has slowed more than expected, and that inflation expectations are becoming “anchored” again, The bank tries to keep expectations near the target, since these play a role in price-setting decisions.

The inflation rate reached a 16-year high of 8.97 percent in July, but has since fallen sharply as the end of a drought improved food supplies, and the peso stabilized following its drop in 2014 and 2015.

Echavarria said he welcomed the drop in the peso, which will provide a boost for agriculture and industry. A floating exchange rate frees the bank to pursue and independent monetary policy, he added.

Credibility Risk

The bank has repeatedly pledged to get inflation back below 4 percent by the end of 2017, and co-director Carlos Gustavo Cano has warned the bank’s credibility will be at “serious risk” if Colombia misses its inflation target for a third straight year. Colombia targets annual inflation of 3 percent, plus or minus one percentage point.

Echavarria, who studied at Oxford University in England, was a central bank board member from 2003 to 2013, and takes over from outgoing Governor Jose Dario Uribe in January.

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