Friday, September 27, 2013

Colombia holds rate, extends FX, sees higher Q3 growth

    Colombia's central bank held its benchmark interest rate steady at 3.25 percent, as expected, and extended its program to purchase foreign exchange worth $1.0 billion from October through December.
    The Central Bank of Colombia, which has held rates steady since April after cutting them by 200 basis points since July last year to boost growth, said the decision to purchase foreign exchange takes into account, among other factors "the recent evolution of the exchange rate and the existence of an expansionary monetary stance."
    Colombia's peso has appreciated this month following the U.S. Federal Reserve's decision to delay tapering asset purchases after easing through August. It was trading at 1,914 to the U.S. dollar today, down 7.7 percent from 1,767 end-2012.
    "Economic indicators and projections show a level of output that is converging to its potential," the central bank said, adding that its recent policy stance and fiscal policy should consolidate this trend although "downside risks are not negligible."

    Colombia's Gross Domestic Product expanded by a stronger-than-expected 2.2 percent in the second quarter from the first for annual growth of 4.2 percent, up from 2.8 percent in the first quarter, and the central bank said recent indicators suggest that growth in the third quarter will be higher than in the first half of the year, boosted by higher investment in buildings while consumption will be steady.
    "The new information increases the probability that GDP growth this year will be similar to that of 2012," the central bank said, adding that risks from advanced economies may be less but those from emerging economies may be growing.
     Colombia's inflation rate rose to 21.2 percent in August from 2.22 percent in July, continuing its recent rise since hitting a low of 1.83 percent in February. The central bank said inflation expectations remain anchored around the bank's 3.0 percent target.



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