Colombia’s central bank will likely raise borrowing costs for a fourth month to cool inflationary pressure as bank lending and consumer spending fuel faster-than- expected economic growth.
The seven-member board, led by bank chief Jose Dario Uribe, will increase the benchmark interest rate by a quarter point to 4 percent today, according to all 21 economists surveyed by Bloomberg.
As Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. boost their forecast for growth in South America’s fourth-biggest economy, pressure is building on policy makers to keep inflation expectations anchored around their 3 percent target. The bank today may also extend through year-end daily dollar purchases of “at least” $20 million to stem the peso’s five-month, 12 percent rally, said Banco de Bogota SA.
“Given the pressure on prices from the output gap’s earlier-than-expected narrowing and strong economic growth dynamic, the bank will raise,” said Camilo Perez, head analyst at Banco de Bogota, country’s second-biggest bank, in an e-mail interview.
Policy makers last month said “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, policy makers have raised the benchmark rate by a quarter point at each of their last three meetings.
Dollar Purchases
Analysts also expect the bank to extend its dollar-buying program beyond June 17 in a bid to stem the peso’s rally, the biggest in Latin America over the past five months.
Uribe, in an interview in Rio de Janeiro on May 27, said he´s “very satisfied´´ with the effect of the program and that capital controls aren´t needed now to ease gains by the peso.
Both Uribe and Finance Minister Juan Carlos Echeverry have said the costs of imposing capital controls like ones used in Brazil right now outweigh the benefits, though conditions may make them more appropriate in the future.
Dollar inflows from rising foreign direct investment have contributed to the stronger peso. In the year through March, FDI rose almost 50 percent to $3.2 billion from the same period a year earlier, with 86 percent going into oil and mining, according to the central bank. The government forecasts 2011 FDI of $8 billion and $13 billion in 2014.
The currency on May 27 strengthened 1 percent, its biggest gain in two months, to close at 1807.64 per U.S. dollar. Its rally in the last three months is the biggest among the seven major currencies in Latin America.
“The persistence of the peso at around 1,800 will motivate the bank to maintain its purchases,” Interbolsa SA, the nation’s biggest brokerage, said in a May 25 report.
Inflation, Growth
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 acentral 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.
Expectations for consumer price increases in 2012 have also fallen steadily since February, bolstering Uribe’s claim that inflation will stay around 3 percent this year and next.
Annual inflation eased to 2.84 percent in April, from an annual 3.19 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 0.91 percent, is tied with Peru’s as the lowest in Latin America among nations that target inflation.
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.
“Activity indicators continue to show that the Colombian economy is recovering so the bank should continue with its policy normalization cycle,” said Munir Jalil, chief economist at Citigroup’s Colombia unit, in a telephone interview.
Growth Forecasts
JPMorgan earlier this month raised its 2011 economic growth forecast for Colombia to 4.9 percent, up from 4.5 percent, after the most recent retail sales and industrial production figures beat expectations.
Goldman Sachs this year has raised its forecast to 5.5 percent from 4.6 percent, while Morgan Stanley has raised their forecast for growth to 4.9 percent from 4.4 percent.
Industrial output rose 5.2 percent in March from a year earlier while retail sales jumped 14.6 percent. Exports soared 47 percent in March and imports gained 40 percent. Total gross lending rose 21 percent to 183.6 trillion pesos ($102 billion) in March from a year earlier, according to a report last month by the financial regulator.
Fuente: Bloomberg.
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