Colombia’s surprise decision to raise the benchmark lending rate last month was a necessary move that Finance Minister Juan Carlos Echeverry likened to basic “central banking 101.”
Echeverry, who sits on the central bank’s seven-member board, said on Wednesday policy makers took the unanimous decision to raise the lending rate a quarter-percentage point to 5 percent to help cool the pace of lending and prevent households taking on too much debt.
“It’s central banking 101,” he said, using the numerical term for an elementary introductory course in U.S. universities. “The bank had to increase the rate.”
Speaking in a conference call to investors, he added the economy is not overheating but the price of housing is a “bit high.”
The economy will likely accelerate 6.2 percent in the fourth quarter compared with a year earlier, Echeverry said. He put full year 2011 gross domestic product growth as high as 6 percent.
The central bank on Jan. 30 raised its benchmark overnight rate in a bid to anchor inflation expectations and ease lending in an economy where consumers have been encouraged to buy cars and luxury items after a decade of blows against illegal armed groups made the country safer.
The rate decision was criticized by exporters who said it would bring in speculative capital and further strengthen the currency, threatening to dull their companies’ competitive edge for goods sold abroad.
The peso has strengthened 8 percent so far this year against the U.S. dollar.
Improved security after almost 50 years of a bloody insurgency by Marxist FARC rebels and right-wing paramilitaries has spurred business and consumer confidence, attracting almost $15 billion in foreign investment last year, mostly to the oil and mining sector.
Echeverry said strong tax receipts helped reduce the fiscal deficits both this year and last.
The consolidated deficit for last year was expected to be 2.2 percent of gross domestic product and this year it will likely shrink to 1.8 percent, Echeverry said. The central government deficit is forecast at 2.9 percent in 2011 and end 2012 at 2.8 percent, he said.