Central Bank: keeping rate at 3.5% stimulates GDP

The Central Bank of Colombia’s key interest rate at 3.5% stimulates economic growth, the bank’s seven board members said when they decided to keep the rate unchanged during their last monetary meeting on Jan. 29, according to the Friday release of meeting minutes.

All the board members agreed to keep the rate unchanged as they consider that expansive monetary policy in Colombia has led to a steady decline in interest rates on deposits and lending, the minutes said.

Alberto Ramos, a New York-based economist with Goldman Sachs, said the minutes show the board is comfortable with the current monetary stimulus and is likely to keep interest rate unchanged until the second half of the year and possibly until the end of 2010.

The board members observed the country’s gross-domestic-product growth recovered partially in the third quarter and that business and consumer confidence has improved.

The country’s GDP contracted 0.2% in the third quarter of 2009 compared with the same period in 2008, while it expanded 0.2% compared with the second quarter of 2009.

Jose Dario Uribe, the bank’s chairman, said during his quarterly speech delivered on Friday that the country’s economy will resume growth in 2010 and will likely expand between 2% and 3%.

Low inflation in December and the fact that inflation expectations for 2010 are within the bank’s target range encouraged the board to maintain its policy, the minutes said.

He added that inflation is likely to rise in the coming months because the effects of drought related to the El Nino weather pattern on crops will lead to scarcity of food.

Inflation will likely fall later after the weather returns to normal and will end the year within the 2%-4% target range, he said.

The board members also discussed the lag between monetary policy changes and their effects on output and prices.

Earlier this week, two of the seven board members said publicly they would rather keep rates low for the foreseeable future.

Related posts

Colombia’s Senate agrees to begin decentralizing government

Colombia’s truckers agree to lift blockades after deal with government

Truckers shut down parts of Colombia over fuel price hikes