Bloomberg News

Colombia Cites Low Inflation Risk And Coal Paralysis in Rate Cut

March 08, 2013

Colombia’s economy has no inflationary pressure in the near future, as excess capacity helps keeps prices down, the central bank said today in the minutes to its February policy meeting.

Banco de la Republica also cited “paralysis” in the country’s coal industry, and the risk of weaker demand from Venezuela, in its unanimous decision to cut it policy rate a quarter point to 3.75 percent last month.

“The deceleration in inflation, which was greater than expected, takes place in a context of an output gap, which could keep inflation expectations low for a longer period of time,” policy makers said in the minutes. “It also reduces the probability that unexpected increases, generated by supply shocks, put the achievement of the inflation target at risk.”

Colombia has cut interest rates six times since June to the lowest among major Latin American economies, citing below- potential growth, slowing inflation and a weak global economy. Consumer prices rose 1.83 percent in February from a year earlier, the slowest pace since 1955, as food, clothing and entertainment costs fell.

Colombia has entered a “sustainable low inflation phase,” which means policy makers can concentrate their efforts on getting growth to accelerate to its potential rate of 4.8 percent per year, Finance Minister Mauricio Cardenas said in a March 5 interview. The central bank targets inflation of 3 percent, plus or minus one percentage point.

The economy expanded 2.1 percent in the third quarter from a year earlier, the slowest pace in the Andean region. Gross domestic product will increase 2.5 percent to 4.5 percent in 2013, according to the central bank’s forecast.

Workers at Cerrejon, joint-owned by BHP Billiton Ltd. (BHP), Anglo American Plc (AAL) and Xstrata Plc (XTA) went on strike Feb. 7 in a dispute over pay and benefits, halting work at Colombia’s largest coal mine. The workers will lift the strike tonight, the union said today.

Exports from Colombia’s second-biggest coal producer, Drummond Co., were also interrupted last month, after its loading license was suspended after a sinking barge dumped coal into the sea. The ban was lifted March 1.

Coal is Colombia’s biggest export after oil.

To contact the reporter on this story: Oscar Medina in Bogota at omedinacruz@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


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