Colombian policy makers said they may raise the country’s benchmark rate if inflation expectations rise above the target, according to minutes of the central bank’s Jan. 31 meeting published today.
If Colombia’s economy continues to grow, or inflation expectations deviate from the bank’s target, the central bank would gradually remove monetary stimulus, the minutes said. Policy makers, who expect inflation this year between 2 percent and 4 percent, kept the benchmark interest rate at a record low 3 percent for a ninth straight meeting last month.
“The board analyzed the conditions in which, given the probable scenarios in the months ahead, it might be necessary to change the stance of the bank’s monetary policy by making it less expansive,” the bank said.
Inflation expectations have risen because of supply disruptions caused by rains last year that were the heaviest in three decades, the bank said. Inflation will likely end 2011 at 3.61 percent, according to 42 economists in a central bank survey. Consumer prices rose 3.4 percent in January from a year ago, while monthly prices rose 0.91 percent.
Inflation, which ended 2010 at 3.17 percent, faster than economists’ expectations, may end both 2011 and 2012 at less than 3 percent, Central Bank chief Jose Dario Uribe said Feb. 4.
Colombia’s economy may have expanded about 4 percent last year, less than previously anticipated, and may grow 4.5 percent in 2011, Uribe said. Spending to repair infrastructure damaged by flooding will cause growth in the $231 billion economy to pick up in the second half of this year, he said.
The board, in deciding to maintain the overnight rate at its current level, said core inflation remains at “low” levels and the recent increase in food prices may be “temporary.” The fallout from Europe’s debt crisis, and uncertainty over economists’ estimates for inflation and economic growth, underscore the need to leave borrowing costs unchanged, the bank said.