Friday, January 31, 2014

Colombia holds rate, sees inflation moving to target

    Colombia's central bank maintained its benchmark interest rate at 3.25 percent, as expected, saying interest rates remain at a level that stimulates spending and should contribute to improve the productive capacity of the economy as inflation continues to converge toward the bank's 3.0 percent target.
    The Central Bank of Colombia, which has held rates steady since last April after slashing rates by 100 basis points in the first three months of the year, said Colombia's fourth quarter economic growth likely was 4.5 percent as household consumption was growing at average rates while investment was rising and exports accelerating though less dynamically than imports.
    The central bank estimated 2013 growth between 3.7 and 4.3 percent and growth in 2014 was projected at 4.3 percent. In 2012 the economy expanded by 4.0 percent.
    Colombia's finance minister, Mauricio Cardenas, last week suggested that 2013 growth was between 4.3 and 4.5 percent, slightly below the government's official forecast of 4.5 percent, and forecast 4.7 percent growth in 2014, above the central bank's forecast today.
    Colombia's Gross Domestic Product rose by 1.1 percent in the third quarter from the second quarter for annual growth of 5.1 percent, the fastest rate in six quarters, and up from 3.9 percent in the second quarter.

    An improved outlook for growth in the United States has led the Federal Reserve to reduce its asset purchases and the central bank said that "to the extent that liquidity levels remain less expansive, the cost of international funding may increase."
    However, it also sees continued global economic recovery with growth in Colombia's trading partners above 2013.
    The bank noted that the Colombia peso had depreciated against the U.S. dollar as part of the impact of the changes in the Fed's policy but made no further comment on exchange rates.
    Colombia's peso has weakened by 4.7 percent this year, trading at 2,025 to the U.S. dollar earlier  today after falling by 8.4 percent in 2013, helped by the central bank that has been intervening in foreign exchange markets for more than two years to hold back an appreciation of the peso.
    In December the central bank extended its currency intervention program by as much as $1 billion through the end of March, but Cardenas, who sits on the bank's board, has hinted that the intervention program could be halted.
    Colombia's inflation rate rose to 1.94 percent in December, up from November's 1.76 percent, but still below the central bank's range of 2.0 to 4.0 percent.
    The central bank said the average measure of core inflation in December was 2.5 percent and inflation expectations are close to 3.0 percent.

    www.CentralBankNews.info

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