Bloomberg News

Colombia Boosts Reserve Requirements to Cool Credit Surge

May 18, 2012

Colombia put in place additional reserve requirements on consumer credit as it seeks to prevent surging lending from fuelling inflation.

The measures, which apply to lenders that have seen an increase in bad loans, will help avoid “future problems,” Finance Minister Juan Carlos Echeverry said in a joint statement by the ministry and the nation’s financial regulator.

Policy makers voiced concern about consumer credit at their April 30 meeting, while voting to keep the key interest rate on hold as the economy slows. Consumer lending grew 22 percent in March from a year earlier and could stir inflation pressures, the board said. The decision to extend reserve requirements supports the view that the bank will keep its key rate on hold in the near term, said Fernando Palma, a Lima-based strategist at Banco Bilbao Vizcaya Argentaria SA

“This should be interpreted as a macro-prudential measure” that will help contain “credit loan expansion without withdrawal of monetary stimulus,” Palma said in an e-mailed note to clients. The measure applies to new loans, according to today’s statement.

Banco de la Republica has kept borrowing costs on hold since its March meeting as inflation slows after nine rate increases in 13 months.

The use of so-called “macro-prudential” measures have a faster impact than the 18-24 month delay associated with higher borrowing costs, central bank co-director Carlos Gustavo Cano said in a Feb. 9 interview.

Credit Growth

Total credit grew at an annual pace of 19.7 percent in March after expanding 20.4 percent in February, according to the central bank.

“This sends a clear signal that the government is going to seek to ease lending with measures other than further rate increases,” said Julian Marquez, an analyst in Bogota at Interbolsa SA, Colombia’s largest brokerage. “Those that were expecting more rate increases are likely changing their view, at least for the coming months.”

Most of the economists in a central bank survey published May 11 expected policy makers to raise the overnight lending rate a quarter point to 5.5 percent in September.

The yield on Colombia’s 6 percent peso-denominated debt due in April 2013 fell one basis point, or 0.01 percentage point, to 5.34 percent at 11:53 a.m. in Bogota, according to the central bank.

Consumer prices rose 0.14 percent in April, the national statistics agency said May 5, less than the 0.17 percent median estimate of 30 economists surveyed by Bloomberg. Annual inflation, which slowed to a seven-month low of 3.40 percent in March, was 3.43 percent in April.

Peru’s central bank increased monthly reserve requirements in soles and dollars for the first time in a year May 1 to stem credit growth and tame a rally in the sol to a 15-year high.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net; John Quigley in Lima at jquigley8@bloomberg.net.

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


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