Colombia’s central bank will likely keep its benchmark interest rate at a record low for a fifth straight month as tame inflation allows policy makers to bolster demand in South America’s fourth-largest economy.
The seven-member board, led by bank President Jose Dario Uribe, will keep the interbank rate at a record low 3 percent, according to all 30 economists surveyed by Bloomberg. Policy makers also may seek ways to drain liquidity from the market after pledging to buy at least $20 million daily to stem a rally that pushed the peso to the biggest gain this year.
“There won’t be any change in the rate for the rest of 2010,” said Citigroup Inc. economist Munir Jalil in Bogota. “The bank has the new economic growth numbers and will now be looking toward any inflationary pressure next year.”
The government yesterday said gross domestic product grew 4.5 percent in the second quarter from a year ago, lower than all but one forecast among 31 economists surveyed by Bloomberg.
At that level, Finance Minister Juan Carlos Echeverry’s estimate of 5.5 percent GDP growth in 2011 may not be possible, said Jalil. The government set an official forecast of 4.5 percent.
Policy makers last month said that broad-based domestic demand driving the economy’s rebound in the first half of 2010 had become “less evident” in the third quarter, according to the minutes of their Aug. 20 meeting published Sept. 3.
The board also signaled concern that slower growth in the U.S., Colombia’s biggest trading partner, may exacerbate a decline in exports.
‘Drop in the Ocean’
The bank’s board may announce new measures to weaken the currency after saying Sept. 15 it would buy dollars, said Andres Jimenez, international sales director at Interbolsa SA, Colombia’s biggest brokerage. It also may say how it plans to take pesos out of the economy to avoid stoking inflation.
“In a market of $1 billion a day, the $20 million is a drop in the ocean,” said Jimenez. “They could announce how they will sterilize, but if they do that too soon they could shoot themselves in the foot if the whole thing has been unsuccessful.”
The bank resumed daily dollar purchases to help ease gains in the peso for at least four months to bolster foreign reserves. On Aug. 20, Uribe said he would buy dollars when “appropriate,” after President Juan Manuel Santos called for “bold and creative” action to weaken the peso.
Santos’ predecessor, Alvaro Uribe, repeatedly asked the bank to curb the currency’s appreciation, which he said caused exporters to cut jobs as a stronger peso makes Colombian exports more expensive in dollar terms.
Among steps to drain liquidity, the bank could issue its own debt or sell part of its government bond holdings that amounted to 1.6 trillion pesos ($886 million) at the end of August.
Any sale of its own debt would require coordination with the Treasury to prevent competing with government debt sales, said Jalil.
The finance minister said Sept. 15 that capital controls aren’t being contemplated.
“Echeverry highlighted that the intervention was market friendly, which suggests to us he won’t do anything market- unfriendly; that’s positive,” said Jimena Zuniga, a Latin America economist at Barclay’s Inc. in New York. “Moreover, the announced intervention already gives them the freedom to buy more than $20 million on any given day.”
Colombia’s peso will weaken to 1,843 per U.S. dollar by year-end, according to the median forecast of 10 economists in a Bloomberg survey.
The peso yesterday weakened 0.5 percent to 1811.57 per dollar, paring its 2010 gain to 12.8 percent, the best performance among currencies tracked by Bloomberg worldwide.
Santos needs a weaker peso to support his pledge to achieve 6 percent GDP growth within two years and to add 2.4 million jobs to lower Colombia’s 13.3 percent unemployment rate, which is the highest in Latin America.
Echeverry plans to boost spending on infrastructure, housing and agriculture.
Annual inflation was 2.31 percent in August, near the five- decade low of 1.84 percent posted in March. Economists surveyed monthly by the central bank expect inflation to rise to 2.97 percent by year-end.