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Lunes, 21 Marzo 2016 09:42

Banrep hikes rate 25 bps to stem inflation, current account woes

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Colombia’s central bank raised its benchmark lending rate on Friday to 6.5%, the seventh consecutive monthly increase, as policymakers grapple with high inflation figures and a deep current account deficit.

Colombia’s central bank raised its benchmark lending rate on Friday to 6.5%, the seventh consecutive monthly increase, as policymakers grapple with high inflation figures and a deep current account deficit.

The seven-member board decided by majority to boost the lending rate by 25 basis points, meeting the forecast of all analysts in a Reuters survey last week.

Inflation has spiked amid a depreciation in the peso currency and high food prices caused by drought, while the current account deficit grew last year to 6.4% of gross domestic product.

Meanwhile, national income has been battered by the global fall in prices for crude oil, the country’s most lucrative export and biggest source of foreign exchange.

Inflation reached 7.59% in the 12 months through February, and currency and consumer price pressures may mean it will be slow to fall to the bank’s long-term 2% to 4% target range, the board said in a statement.

“Large increases in food prices and the partial transference of the depreciation to internal prices continue to exert pressure on inflation,” bank chief Jose Dario Uribe told journalists.

Analysts expect inflation to reach 8% before decreasing later in the year.

Recent gains in the peso’s value against the dollar have reduced the depreciation over the last 12 months to 15.3 percent, down from the 31 percent recorded at the close of 2015.

The current account deficit widened in 2015 as a percentage of GDP from 5.2% in 2014, but totaled less in dollar terms; down to $18.9 billion in 2015 from $19.6 billion recorded the year before.

Finance Minister Mauricio Cardenas, who represents the government on the board, has said recent current account figures are unsustainable.

“In order to ensure that inflation converges to the target in 2017 and contributes to reducing the current account deficit, the board decided to continue on the path of 25 basis point increases,” the statement said.

The board maintained its growth forecast for 2016 at between 1.5% and 3.2%, with 2.7% as the most likely figure, because of higher-than-expected fourth quarter growth and an increase in oil prices, the statement said.

The country grew 3.3% in the final three months of 2015 and expanded 3.1% in the full year.

A visiting delegation from the International Monetary Fund lowered its Colombia growth projection on Friday to 2.5% from 2.7%.

Reuters | by Julia Symmes Cobb; Additional reporting by Nelson Bocanegra, Carlos Vargas and Monica Garcia; Editing by Helen Murphy and Chizu Nomiyama

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