Minutes from the Colombian central bank’s last policy meeting, where it raised rates amid a growing economy and faster inflation, indicate the bank nonetheless sees “a great deal of uncertainty” in its own forecast for 2011 economic expansion.
The minutes from the Feb. 25 meeting were released Friday in a report from the bank. It said the bank forecasts economic growth of 4.5% for 2011 and notes that economic expansion is one of the reasons it chose to hike its key interest rate at the meeting by 25 basis points, to 3.25%.
Prior to the February rate hike, the bank had left rates at a historical low 3.0% for nearly 10 months amid a sluggish economy and relatively low inflation.
It said it decided to hike rates because an “inconsistency … could result from having an exceptionally low interest rate coupled with anticipated growth in 2011.”
But it added that 2011’s growth projection of 4.5% “is surrounded by a great deal of uncertainty, given the various economic and political risks facing the world, as well as the extent of growth in public spending in Colombia.”
The bank’s minutes also showed that it took into account a deteriorating inflation outlook in its decision to hike rates. While inflation this year should come in around the midpoint of its 2% to 4% target, it said that inflation expectations over one year surpass long-term targets.
Risks to the world economy were also considered when it decided to hike rates, the bank said.
Specifically, it cited the “continued uncertainty sparked by the fiscal situation in several industrialized countries and the rise in the international price of oil in recent weeks as a result of the political instability in the Middle East.”
When the bank hiked rates last month, it indicated it was the “beginning” of a plan to remove monetary stimulus, so analysts say several more rate hikes are likely this year. Whether the bank may hike rates each month over the next few months, however, is somewhat in doubt because February inflation was low compared to economists’ expectations. The next meeting is later this month.
(Dan Molinski, Dow Jones)