Central Bank lifts GDP growth forecast

The Colombian central bank lifted its economic growth target for the year, as higher exports and more consumer spending are giving an added boost to the economy.

Colombia’s economy is likely to grow between 3.5% and 5.5%, said the central bank’s chairman, Jose Dario Uribe on Friday. The likeliest scenario is that the economy will expand 4.5%, he said.

Uribe cited strong growth in the export sector and an increase in consumer and household spending as evidence that growth will be higher than the previous estimates of 2% to 4%.

Colombia’s Trade Ministry expects exports to climb 22% to $40 billion in 2010.

The government, meanwhile, may soon review its 3% growth target for the year, said departing Finance Minister Oscar Ivan Zuluaga, who sat in his last central bank monetary policy meeting.

Zuluaga is slated to be replaced by Juan Carlos Echeverry once President-elect Juan Manuel Santos takes office on Aug. 7.

During the monetary policy meeting on Friday the central bank’s board also kept its key benchmark rate at 3%, as was widely expected by analysts. Most economists are forecasting the rate will remain unchanged until the end of this year or early 2011.

The central bank’s board cut its key rate on April 30 by 50 basis points, to 3%, saying that low inflation allowed for more expansive monetary policy. The bank started its cycle of rate cuts in December 2008, when the rate stood at 10%.

The bank reiterated that inflation is under control and that consumer price index readings are coming in lower than it had expected, in large part because of small increases in food prices.

The higher economic growth target confirms a strong recovery after gross domestic product grew only 0.8% last year. The Colombian economy expanded 4.4% in the first quarter, the fastest pace in two years.

Economic performance this year isn’t threatened by the recent diplomatic dispute that erupted with Venezuela, traditionally Colombia’s second-largest trading partner, Uribe suggested.

Both Zuluaga and Uribe pointed out that Venezuela’s relevance for Colombian exporters has already dwindled in the last two years, with sales to the neighboring country dropping from more than $6 billion in 2008 to an expected $1.2 billion this year.

Disputes between Caracas and Bogota pushed Venezuelan President Hugo Chavez to shut the border to many Colombian exporters last year. This week Chavez cut all diplomatic ties with Colombia after Bogota accused Venezuela of tolerating the presence of a Colombian leftist guerrilla group that is labeled as a terrorist organization by the European Union and the U.S.

During the meeting the central bank didn’t unveil its plans for possible dollar sales in the currency market, which could boost its international reserves and keep the peso from appreciating.

Between March and June, the central bank bought $1.6 billion on the spot market to tame the peso appreciation.

Uribe said that the central bank didn’t rule out a future intervention in the spot market, adding that the current exchange rate was “very stable.”

Since the bank halted its dollar purchases at the end of the June, the peso has strengthened 1.7%. On Friday it closed at COP1,868 to the dollar from COP1,861.80 on Thursday. (Darcy Crowe and Inti Landauro / Dow Jones)

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