Colombia left borrowing costs unchanged for a third straight month as inflation remains near a six-decade low and economic growth shows signs of picking up.
Banco de la Republica, led by Governor Jose Dario Uribe, held its benchmark interest rate at 3.25 percent today, as forecast by 26 of 27 analysts surveyed by Bloomberg. One analyst predicted a quarter-point cut.
The central bank has reduced borrowing costs seven times in the past year as the inflation rate fell to its lowest level since 1955 and industrial output slumped the most since the aftermath of the 2008 global financial crisis. The central bank will start to raise rates in the fourth quarter as growth and inflation pick up in response to the bank’s stimulus, said Daniel Velandia, head analyst at Credicorp Capital’s Colombia unit in Bogota, who forecast today’s decision. Industrial output grew in May at the fastest pace since August 2011.
“The delayed action of monetary policy, together with economic data, show that the worst of the economic cycle is behind us in the first quarter,” Velandia said in a June 27 phone interview. “In November, we see them starting a moderate tightening cycle.”
Industrial production leaped 8.4 percent in April from the year earlier, almost twice the pace analysts had expected. Retail sales gained 5.7 percent over the same period, compared with the 3.2 percent forecast by analysts.
The peso weakened to an 18-month low this month, raising the prospect of faster inflation later this year. The currency declined after the U.S. Federal Reserve signaled it may start reducing stimulus that buoyed emerging-market assets as investors sought higher yields.
The yield on the nation’s benchmark peso bonds due 2024 rose 6 basis points to 6.714 percent at 11:48 a.m. in Bogota. The yield has risen 71 basis points this month. The peso weakened 0.3 percent to 1927.98 per dollar.
Annual inflation slowed to 2 percent in May, from 2.02 percent in April, after touching a six-decade low of 1.83 percent in February. Two measures of core inflation tracked by the central bank, which aim to track underlying trends by excluding the most volatile prices, slowed to record lows last month.
Consumer prices will rise 2.55 percent this year, and 3.1 percent in 2014, according to a June central bank survey of economists.
Inflation slowed as the economy economy grew 2.8 percent in the first quarter from a year earlier, slower than the 4.8 percent expansion in Peru and 4.1 percent in Chile and faster than the 0.8 percent growth rate in Mexico. The industrial sector contracted 4.1 percent over the same period.
President Juan Manuel Santos announced in April a 5 trillion peso ($2.6 billion) stimulus package to “reactivate” the industrial sector and boost growth by 0.7 percentage point this year. Growth and inflation will pick up this year as Santos ramps up spending ahead of the 2014 elections, said Rafael Neira, a financial risk analyst with GNB Sudameris.
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