Colombia Says Move to ‘Less Expansive Policy Must Continue’.

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Colombia’s central bank said “record-low” interest rates and the likelihood that South America’s fourth-biggest economy is operating near its potential means that policy makers will push borrowing costs up higher in the months ahead.

Citing the delayed effect of interest rate increases on consumer spending and prices, “the Board of Directors felt the move towards a less expansive monetary policy must continue,” the seven-member board, led by bank chief Jose Dario Uribe, said at their May 30 meeting, according to the minutes posted on the bank’s website today.

At last month’s meeting, Banco de la Republica raised its benchmark rate by a quarter point to 4 percent as policy makers seek to keep inflation expectations anchored to their target of 2 percent to 4 percent. The increase matched the expectations of all 25 economists surveyed by Bloomberg.

Policy makers last month noted that “extremely low” borrowing costs over a prolonged period could generate risks to financial stability, sustainable economic growth and future inflation. After pausing at a record-low 3 percent for nine months, officials have raised the rate by a quarter point at each of their last four meetings.

Policy Balance

While economic growth will likely be affected by torrential rains and flooding over the last several months, gross domestic product will likely expand close to 5 percent in 2011, Uribe said last month.

The current benchmark rate will continue to support economic growth and job creation, policy makers said at the May meeting.

Annual inflation quickened to 3.02 percent in May, from an 2.84 percent the previous month, and up from a decade-low of 1.84 percent a year earlier. Colombia’s real interest rate after inflation, at 0.98 percent, is lowest in Latin America among nations that target inflation.

Economists are optimistic policy makers can keep inflation under control this year even as economic growth strengthens.

Prices are expected to rise 3.10 percent this year, according to a central bank survey of 39 economists published May 11. That’s less than the 3.31 percent forecast in an April survey and down from 3.61 percent in February.

Fuente: Bloomberg.