Colombia’s Central Bank plans to keep the benchmark interest rate at its current historic low of 3% until after the third quarter of this year, board member Fernando Tenjo told Dow Jones.
“Many people say that we should increase rates in the third quarter, but with the inflation levels we’re seeing it can wait until after that,” Tenjo said in an interview with the newswire.
Tenjo said that it was not yet known when the rate would be raised, and that “We’ll make that decision with the information we have available at that time.”
The country’s interest rate was slashed from 10% in successive Central Bank meetings over the course of 2009 down to 3.5%, where it remained for the next four months, in order to help the economy recover from the global economic downturn.
The Central Bank then carried out a surprise cut of the rate to 3% on April 13, which it justified by Colombia’s low rate of inflation. The bank predicts that inflation this year will be 3%, squarely within the its 2-4% target.
Colombia’s inflation is expected to reach 3.28% in 2010 and 3.58% in 2011, according to a survey carried out by a bank earlier in May.
Morgan Stanley warned, however, that Colombia could suffer an inflation “surprise” later in the year, forecasting an inflation rate of 4.4%.
The firm commented that “The central bank’s decision to cut rates may be a signal that the authorities are focusing more on fighting currency appreciation and may have to pay the inflation costs of such a policy shift.”
Last year’s annual inflation hit a 54-year low of 2% as domestic consumption fell and the strengthened peso brought down the price of imported goods.