The Central Bank of Colombia has raised the lending rate to 4.25% in order to withdraw the monetary stimulus of the boosting economy, according to a report by Bloomberg.
July was the fourth month in a row that the central bank had increased the lending rate while Colombia has been the fastest growing economy in Latin America and has expanded at the fastest pace in two years since January.
The seven-member board that decides whether or not to lift, lower, or keep the rate, chose to increase the lending rate in a split decision, according to the governor of the central bank, Jose Dario Uribe.
Even though some members on the bank’s decision board voted against raising the interest rate, the higher rate has been considered positive.
“the majority believe the economy is growing at or above potential”
“Although some board members opposed the 25 basis point hike, the upwards revision in the growth forecast shows that the majority believe the economy is growing at or above potential and that they should continue to steadily withdraw monetary stimulus,” Francisco Rodriguez, an economist of Bank of America, told Bloomberg.
Central bank governor Uribe stated that the expected growth forecast of the gross domestic product (GDP) would be raised from 4.3% to 5% by the end of the year. At the same time, neighboring countries such as Peru, Chile, and Mexico have lowered borrowing costs as their growths have slowed down.
In the first quarter of 2014, Colombia’s GDP rose 6.4%, which according to Bloomberg, was due to a surge in public works spending and a recovery in the coal and coffee industries. During the same period, Chile’s economy grew 2.6% and Peru’s expanded by 4.6%.
Consumer prices in Colombia increased by 2.8% in June of 2014 compared to 2013, the slowest rise in Latin America, which means the inflation is under control, according to Bloomberg.
The inflation rate is predicted to end the year close to the targeted 3%, bank governor Uribe indicated.
A recent central bank survey shows that analysts forecast the key rate will be lifted to 4.5% by the year’s end; however, Bloomberg reports that in the coming month the central bank will pause the increases.
Because of the bank’s unexpected rate tightening in April and the following months, it has allowed the central bank to gradually raise the rate, avoiding suddenly big increases, which could influence the economy in a bad way.
It was reported last week that the Colombian unemployment rate decreased 0.6% by the second trimester. Unemployment lowered in most major cities and rural areas.
Two million are still out of the job market, with the unemployment rate9.2% in June, which is the lowest in 14 years, according to the director of the National Administrative Department of Statistics, Mauricio Perfetti.
Additionally, Colombia experienced a 4.6% growth in imports in the first half of 2014.