Bloomberg News

Colombia Holds Rate at 4.5% to Assess Impact of Europe on Growth

October 28, 2011

Oct. 28 (Bloomberg) -- Colombia’s policy makers kept borrowing costs unchanged for a third straight month as they gauge the impact of the European debt crisis on global growth.

The seven-member board, led by bank chief Jose Dario Uribe, held the overnight rate at 4.5 percent today, matching the forecasts of 28 of 29 economists surveyed by Bloomberg. One analyst expected a quarter-percentage point increase to 4.75 percent.

“The international context continues to weigh on the central bank’s decision,” said Julian Marquez, an analyst at Bogota-based Interbolsa SA, Colombia’s biggest brokerage. “Banco de la Republica is taking a prudent stance, waiting to see how things unfold abroad.”

Policy makers voted unanimously last month to leave the key lending rate unchanged, arguing that future decisions would depend on changes to the “risk balance” between the “strong dynamics” of Colombia’s economy and “more risks and uncertainty” abroad. Still, a surge in lending that helped fuel the biggest jump in retail sales in more than a decade and faster-than-expected inflation makes it the only Latin American country where traders expect interest-rate increases this year.

Brazil cut borrowing costs twice since August and central bankers in Mexico, Chile and Peru signaled they may do the same as they shift to safeguarding their economies against a global slowdown.

Colombia’s three-month interest-rate swaps at 4.55 percent show traders pricing in a quarter percentage point increase in the benchmark rate in December, according to data compiled by Bloomberg.

Economic Growth

Latin America’s fifth-largest economy will expand as much as 6.5 percent this year, according to the central bank. That compares with 4.3 percent in 2010 and would be the fastest growth since 2007.

“A cut in Colombia is not an option,” BNP Paribas wrote in an Oct. 21 report.

Retail sales surged 23 percent in April, the biggest increase since at least January 2000, before slowing to 9.7 percent in August.

Industrial output jumped 9.5 percent in August, more than double the 3.6 percent median estimate in a Bloomberg survey, and the largest gain since April 2008.

Inflation accelerated to 3.73 percent in September, compared with the 3.43 percent median estimate of analysts surveyed by Bloomberg. The central bank targets inflation of 2 percent to 4 percent this year.

President Juan Manuel Santos told investors at a financial conference this week that the economy isn’t showing signs of slowing and that third quarter growth likely surpassed the second quarter’s 5.2 percent, which was the second fastest in three years.

--Editors: Richard Jarvie, Bill Faries

To contact the reporters on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net; Heather Walsh at hlwalsh@bloomberg.net

To contact the editors responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net;


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