Colombia will probably keep interest rates unchanged for a second straight month as policy makers anticipate that bond-buying plans by the U.S. Federal Reserve and European Central Bank will ease the risk of a global slump.
Banco de la Republica, led by bank Governor Jose Dario Uribe, will hold its benchmark interest rate at 4.75 percent today, according to 28 of 33 analysts surveyed by Bloomberg. Five analysts expect a quarter-point reduction. Policy makers will announce their decision after 11 a.m. local time.
The central bank lowered borrowing costs at its July and August meetings, citing weakening global growth that curbed demand for Colombia’s exports. While the country’s industrial output and foreign sales shrank since the board last met, policy makers will probably wait to see more evidence of a slowdown before cutting rates again, said Katia Diaz, a Latin America analyst at 4Cast Inc. in New York.
“There’s a hawkish majority on the board that insists on waiting for more data before committing to further easing, and probably by month-end we should get that data, and everyone will be on board,” Diaz said in a phone interview yesterday. “They are waiting for things to unfold.” Diaz forecasts a quarter- point cut to 4.5 percent at the central bank’s November meeting.
Last month, a minority of the board voted for an interest rate cut. Four days later in Cali, bank chief Uribe said the ECB’s plan to stem Europe’s debt crisis and a new round of stimulus by the Fed, both announced last month, have reduced the chances of a “collapse” in the world economy.
Global Demand, Peso
Colombia’s industrial output fell 1.9 percent in August from a year earlier, its fourth year-on-year decline since March. The median estimate of 21 economists surveyed by Bloomberg was for a 1.1 percent increase.
At the same time, exports have declined for three straight months on a year-on-year basis, with the trade deficit widening for a second month in August.
Colombian manufacturers have been battered by weak global growth, and by the peso’s 6.7 percent rally against the dollar this year, the fifth-best performance among the 31 most-traded currencies tracked by Bloomberg worldwide. At its September meeting, the central bank extended a $20 million daily dollar purchase program until March, from a previous end-date of November.
Consumer prices rose 0.29 percent in September, higher than the 0.16 percent median forecast in a Bloomberg survey of 32 analysts. Still, annual inflation slowed to 3.08 percent, close to the mid-point of the central bank’s target range.
Colombia has the lowest inflation rate in Latin America after Chile among the region’s seven biggest economies. The central bank targets inflation of 3 percent, plus or minus one percentage point.
Economists expect consumer prices to rise 3.06 percent, according to the median estimate in a central bank survey published on Oct. 11, compared with 3 percent in the bank’s September survey.
Uribe told lawmakers in August that the bank began cutting interest rates due to “the behavior of internal demand, and especially due to the behavior of the global economy and its effects on exports and sectors such as industry.”
Gross domestic product grew 4.9 percent in the second quarter from a year earlier, the third-fastest expansion among Latin America’s seven biggest economies after Peru and Chile. Central bank research shows that the Colombian economy can grow at a long-term pace of 4.3 percent to 5.3 percent without stoking inflation, Uribe said this month.
The yield on the government’s 10 percent peso-denominated bonds due in July 2024 was little changed yesterday at 6.07 percent, according to the central bank.
The benchmark Colcap Index has gained 9 percent in October, heading for the largest monthly gain in three years. The Colcap has climbed 24 percent this year in dollar terms, outpacing stocks in Peru, Chile, and Brazil.
Uribe was last week appointed for a third four-year term at the bank’s helm, starting January.
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