Colombia’s central bank isn’t contemplating cuts to its benchmark lending rate, even as Europe’s debt crisis casts a “grey cloud” over the Andean economy, central bank board member Cesar Vallejo said.
The current interest rate of 5.25 percent is at a level which neither cools nor stokes inflationary pressure, Vallejo said in an interview in Cartagena yesterday.
“At this moment we´re not considering” cutting borrowing costs, Vallejo said. “The output gap is zero and the interest rate is likely at a neutral level. A confirmation of that is that inflation is getting close to the mid-point of the target.”
Colombia has bucked a global trend for lower borrowing costs as consumer credit growth and record foreign investment in energy and mining helped power the fastest growth since 2007 last year. Banco de la Republica has increased the key rate nine times since February 2011, raising it from a record low 3 percent, even as other emerging markets such as Brazil cut rates to protect themselves from European debt turmoil.
Consumer prices in Latin America’s fourth-largest economy rose 3.44 percent in the year through May, down from 3.73 percent at the start of the year. Colombia targets inflation of 3 percent, plus or minus one percentage point.
Colombia is unlikely to increase banks’ minimum reserve requirements as a means of controlling consumer lending growth, since lending is already slowing, Vallejo added.
Increasing reserve requirements “would only be taken in an extreme case and the need has been disappearing,” Vallejo said.
Outstanding credit expanded 20 percent in March from a year earlier, down from 22 percent growth in January. Policy makers have repeatedly expressed concern about the pace of consumer lending growth.
Colombia’s economy grew 5.9 percent last year, faster than the Brazil and Mexico, and trailing Chile and Peru. The central bank forecasts growth of around 5 percent this year.
The Colombian peso has appreciated 9.5 percent against the U.S. dollar this year, the most of 170 currencies tracked by Bloomberg.
The gap between yields on government inflation-indexed bonds due 2013 and similar-maturity fixed-rate debt, a gauge of annual consumer price increase expectations, fell to 2.41 percentage points today, from 4.07 on Feb 17.
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