Colombian Monetary Policy Not Changed

January 29, 2010

The Central bank of Colombia, as analysts projected, left its intervention interest rate at 3.5% for a second straight meeting.  Previously, the rate had been cut by 50 basis points each in June, September and November of 2009, and before that officials had implemented cuts of 100 bps in four consecutive months (February through May) and of 50 basis points each in December 2008 and January 2009.  So the key interest rate is now about a third of its 10% peak prior to December 2008, but it is not nearly as low as inflation.  On-year CPI inflation fell further to 2.0% in December from 2.4% in November, and indicators of expected inflation remain consistent with a 2-4% target band.  Colombia’s economy is now recovering with greater-than-expected November-over-November increases of 2.0% in both retail sales and industrial production, but neighboring Venezuela’s hostile government’s threat to prohibit imports from Colombia poses a future risk to the expansion, the trade balance and the the peso’s external value.  Central bank officials in Bogata consider a 3.5% interest rate sufficiently expansive.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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