Bloomberg News

Colombia Holds Key Rate at 3.25% as GDP Expands Most in Andes

December 20, 2013

Colombia left its benchmark interest rate unchanged for a ninth straight month after economic growth accelerated to the fastest pace in the Andean region in the third quarter.

Banco de la Republica, led by Governor Jose Dario Uribe, held its policy rate at 3.25 percent, as forecast by all 27 analysts surveyed by Bloomberg.

The economy grew the most in six quarters between July and September, leading policy makers to withhold the extra “monetary boost” they had signaled might be needed in the minutes to their November meeting. The central bank trimmed borrowing costs seven times between July last year and March, the deepest cuts in the region, as inflation slowed to levels not seen since the 1950s and industry slumped.

“This surprise jump in growth reduces the chance that they’ll cut rates,” said Daniel Escobar, head analyst at Global Securities brokerage in Bogota, speaking by phone before today’s decision. “Now that the economy is growing at this speed, the bank can start to normalize its monetary posture.”

The economy grew 5.1 percent in the third quarter from a year earlier on a surge in home building and an improved coffee harvest, the national statistics agency said yesterday. That’s faster than Brazil, Mexico, Peru, Chile and Venezuela, while Argentina is scheduled to publish its third quarter gross domestic product report today.

Construction Boom

The expansion was driven by the construction sector, which grew 21 percent from a year earlier, with home-building activity up 26 percent and public works up 19 percent. Agriculture expanded 6.6 percent, led by coffee, while mining and energy expanded 6.1 percent. Industry was the only sector that declined, contracting 1 percent from a year earlier.

Faster growth helped push the national jobless rate down to 7.8 percent in October, its lowest level since 1995, led by increased employment in hotels, restaurants and other service businesses.

Even as the economy gained speed, inflation has remained below the lower bound of the target range. Consumer prices rose 1.76 percent in November from the year earlier, the slowest pace since 1955, as food and housing costs fell.

The central bank’s failure to get inflation back to the mid-point of its 2 percent to 4 percent target band led policy makers to signal in the minutes to their November meeting that they might cut interest rates for the first time since March.

Chile, Peru and Mexico have all cut interest rates in the past three months as growth slows and inflation remains subdued.

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

To contact the editor responsible for this story: Matthew Bristow at mbristow5@bloomberg.net


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