Friday, August 29, 2014

Colombia raises rate for 5th time, may now pause

    Colombia's central bank raised its benchmark intervention rate by 25 basis points for the fifth time in a row but signaled that it may now pause in its tightening cycle by saying it hopes today's rate rise will keep inflation expectations close to the 3.0 percent target and economic activity at its potential level.
    The Central Bank of Colombia has now raised its policy rate by a total of 125 basis points since April to curb inflationary pressures and said the economy was adjusting to the change in its monetary policy stance.
    Colombia's headline inflation rate rose to 2.89 percent in July from 2.79 percent in June, but was below May's 2.93 percent. The central bank said the four core inflation indicators that it monitors had declined for the second consecutive month and reached 2.58 percent.
    The central bank targets inflation at a midpoint of 3.0 percent in a range from 2.0 to 4.0 percent and said the inflation forecast for December and expectations for inflation one year or more were about 3.0 percent.
    Colombia's economy is forecast to expand by about 5.0 percent this year, the bank said, confirming its forecast from July when it raised the projection from a previous 4.3 percent. Last year the economy expanded by 4.7 percent.

    Economic growth in Colombia's trading partners was lower than expected in the first half of the year, but the central bank said it expects more dynamic external demand in the coming quarters, supported by the U.S. economic recovery.
    It added that the decline in oil production compared with last year and lower international oil prices may lead to a reduction in oil revenue and this may affect domestic demand, the bank said.
    In addition, annual growth in bank credit has declined in the last two months.
    On Aug. 19 Carlos Gustavo Cano, one of the members of the central bank board, told the El Tiempo newspaper that he leaned toward raising interest rates one more time as part of the bank's tightening campaign.




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