Colombia central bank chief Jose Dario Uribe said Monday the bank’s key interest rate remains low at 3.75%, given the economy’s “good pace” of growth, and said the bank intends therefore to continue increasing rates as needed to remove monetary stimulus.
The bank, which left interest rates at a historic low of 3% for nearly 10 months following a 2009 lull in economic activity, began increasing rates incrementally in February of this year and economists say such rate hikes could continue throughout 2011.
“The economy will very probably grow by 5% this year, an important increase from the 4.3% rise in 2010,” Uribe said during a presentation on the state of the Colombian economy so far in 2011. “Consumer confidence, starting in the second half of 2009, began rising enormously.”
Uribe also said consumer price inflation has begun to fall in an “important” way since late January and said he’s confident inflation will end the year close to the midrange of the bank’s 2011 inflation target of 2% to 4%.
For 2012, he said studies by the bank and a survey of inflation expectations suggest the 2012 consumer price index will end “very near” 3%.
Uribe said the bank and many private economists were somewhat surprised inflation rates have trended lower in recent months, given torrential rains that last year caused a spike in prices on food, transportation and other sectors.
April CPI reached a six-month low of 0.12%, landing well below economists’ forecasts of a 0.35% increase.
During a question-and-answer session, the central bank Governor Uribe said he views a $6.2 billion credit line by the International Monetary Fund, which was approved in Washington last Friday, as “very cheap” insurance for the country. He said it will boost confidence and serve as additional protection against external shocks.
Uribe said the bank stands ready to respond to any sharp, undesired movements in Colombia’s foreign exchange rate against the dollar, and said capital controls remain an option. However, he said the decision to use such tools are made on a cost-benefit analysis and said so far it’s been determined that capital controls are not worth it.
The bank, he said, continues to buy at least $20 million a day in the forex market as a way to prevent unwanted strength in the peso, which was recently trading at around COP1,790 to $1. Those dollar purchases by the bank will continue throughout at least the middle of next month, he said.