Bloomberg News

Most Accurate Colombia Forecasters Predict 10th Rate Rise Today

March 23, 2012

Colombia will raise interest rates for the 10th time in 13 months today after the economy expanded at the fastest pace since 2007, according to the economists with the best track record of predicting the central bank’s moves.

While 16 of 30 analysts surveyed by Bloomberg expect policy makers to hold the benchmark rate at 5.25 percent today, the three most-accurate forecasters in Bloomberg surveys all predict another quarter-point increase.

“The central bank remains worried about the behavior of consumer credit,” said Andres Langebaek, a senior economist at Banco Davivienda SA, and the analyst with the best record of predicting Colombian interest rates. “The biggest worry of the bank in its most recent rate increases has been this subject, so we think that the need to raise rates remains.”

Colombia’s central bank has defied a trend for lower rates in Brazil, Russia, Chile and elsewhere as record oil production and a credit boom powered 5.9 percent growth last year. The higher rates will help policy makers temper inflation that has remained above the 3 percent mid-point of their target range since April 2011. An increase could draw more capital inflows, adding to the problems of exporters hit by a 10 percent surge in the peso this year, the world’s best performing currency against the dollar.

Langebaek expects any rate increase to be the last of the year, he said in a phone interview.

‘Priority’

Colombia’s policy makers in recent months have repeatedly voiced concern over the pace of credit growth. Household debt has increased to close to record levels as a share of income, while the quality of consumer loans has deteriorated, central bank co-director Carlos Gustavo Cano said last week. Cano said both trends are “disturbing”.

Consumer prices rose 3.55 percent in the 12 months through February, from 3.54 percent a month earlier. In October, annual inflation breached the upper limit of the central bank’s target range for the first time since 2009. Colombia targets inflation of 3 percent, plus or minus one percentage point.

Unlike Brazil, where policy makers are slashing rates to try to revive growth and prevent the appreciation of the real, Colombian policy makers are more focused on inflation, said Juana Tellez, chief economist at Bogota-based BBVA Colombia, and the analyst with the third-best record of predicting interest rates.

“They are giving priority to inflation, as they have done historically, and they want to get inflation to 3 percent,” Tellez said in a telephone interview. “This a very important contrast with Brazil.”

Oil, Mining

The gap between yields on government inflation-indexed bonds due in 2013 and similar-maturity fixed-rate debt, a gauge of annual consumer price increase expectations, fell to 3.29 percentage points yesterday, down from 3.81 percentage points on Feb. 24 when the central bank last raised rates.

Last year’s economic growth was led by a 14.3 percent rise in crude oil and natural gas output, and a 15.4 percent increase in coal, the statistics agency said yesterday.

Investments in oil and mining, along with higher interest rates, have pulled in capital which has added to gains in the peso. Mining Minister Mauricio Cardenas said Jan. 26 that Colombia will receive around $10 billion in foreign direct investment in these sectors this year, similar to 2011 levels.

Shares in state-run oil producer Ecopetrol SA, Colombia’s biggest company by market capitalization, have risen 25 percent this year, while shares in Pacific Rubiales Energy Corp., which operates Colombia’s biggest oil field, have risen 38 percent.

Exporters

The National Federation of Coffee Growers and other exporters have urged the government to do more to curb the strength of the peso, which they say is harming their business. President Juan Manuel Santos’ government has repeatedly voiced concern that the peso’s strength could hurt manufacturers.

Industrial output rose 2.4 percent in January from a year earlier, its slowest growth in nine months. Finance Minister Juan Carlos Echeverry said this week that the government doesn’t rule out more measures to curb the currency’s strength.

The Colombian government has pledged to keep at least $1 billion of dividends from Ecopetrol outside the country to avoid adding to gains in the peso, while the central bank extended a program of daily purchases of a minimum of $20 million until at least Aug. 4, from the initially announced minimum three-month period.

To contact the reporters on this story: Matthew Bristow in Bogota at mbristow5@bloomberg.net

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


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