An Eighth Interest Rate Hike for Colombia

January 30, 2012

Analysts were not expecting another monetary tightening until next month, but the 7-person Monetary Board of the Central Bank of Colombia just announced a 25-basis point increase of its overnight benchmark rate to 5.0%.  This was the eighth such increase since February 2011 and the first one since November 25.  A statement observes that on-year GDP growth of 7.7% in the third quarter surpassed expectations and embodied a 9.4% jump in domestic demand.  A strong dynamism persisted last quarter, expected inflation has accelerated, and core inflation edged above 3.0%.  Total consumer prices were 3.7% higher than a year earlier in December, not far from the target ceiling.  Rapid growth in bank lending and consumer credit are other concerns.  The main downside growth risk would be faced if the European debt crisis is mishandled and creates a disorderly adjustment impacting the world economy.  That hypothetical possibility didn’t stop officials from reacting to actual developments happening more locally.  Monetary policymakers also defied political pressure to keep credit policy on pause.  The next meeting is scheduled for February 24th.  The cyclical low in Colombia’s central bank rate of 3.0% was in place from April 30, 2010 until February 2011.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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