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Economy

Central Bank raises interest rate 0.25%

by Marguerite Cawley February 25, 2011

Colombia News - Interest Rate

In a surprise move, Colombia’s Central Bank raises the benchmark interest rate to 3.25%, contrary to expectations of economists, reported El Espectador on Friday.

The announcement was made by Central Bank head Jose Dario Uribe, who explained in a press statement that it is no longer appropriate to maintain the historically low interest rates of 2010.

“The necessity to protect ourselves from the risk of future imbalances… suggests that the interest rate should not be maintained very low for an excessively long period.”

The rate had remained at an all-time low of 3% since April 2010.

“The board considers it prudent to begin to reduce the monetary stimulus in a gradual manner. The benchmark interest rate of 3.25% will continue to support the growth of production and employment and contribute to its sustainability at the same time as it maintains inflation within the long-term target range.”

According to a Friday article, the decision surprised 21 of 23 economists surveyed by Bloomberg Businessweek. In a shift from earlier expectations, the board last month said “it may raise if growth accelerates, or inflation expectations deviate from the bank’s target.”

However, according to a Tuesday Dow Jones Newswire, it was expected that this would not happen until at least next month: “The central bank will hold its benchmark rate at 3% during its next monetary policy meeting on Friday, all but one of the seven analysts surveyed by Dow Jones Newswires said.”

Rising inflation in the Colombian food and fuel markets in the past several months, exacerbated by heavy rains and floods, as well as problems in the world economy as a whole, contributed to the decision.

Central Bankeconomyinterest rate

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