(Adds finance minister quote on currency measures)
By Peter Murphy
BOGOTA May 9 Colombia's central bank chief said
on Friday the economy probably grew about 4.8 percent in the
first quarter of 2014 and that inflation was on course to hit
its 3 percent target for the year, even as internal demand picks
Jose Dario Uribe said last month's quarter-point increase in
the benchmark interest rate to 3.5 percent - the first in more
than two years - was a "prudent" measure to keep a lid on
inflation but the lending rate remained "expansionary"
"We see healthy dynamism in internal demand and investment,"
Uribe said during a televised update on inflation that he makes
each quarter. He said economic output would rise to the
country's potential level within 12 to 14 months.
Colombia's economy has maintained low inflation and enviable
growth above 4 percent, faster than most other South American
countries with the exception of Peru.
Expansion this year is expected to be higher than last
year's 4.3 percent, at around 4.7 percent, the government says.
The central bank has a lower growth estimate of 4.3 percent.
Foreign cash has gushed into the Andean nation's financial
markets since March 19 when investment bank J.P. Morgan said it
was raising the weighting of Colombian government bonds in two
of its indexes.
That has caused the peso to strengthen 6 percent in the
seven weeks since that announcement. Uribe said the peso was now
stronger than desired and the bank's board would discuss at its
next meeting whether to keep buying dollars to limit its rise.
Board member Adolfo Meisel said on Thursday the bank could
extend its dollar-purchase program beyond its scheduled June
Finance Minister Mauricio Cardenas said on Friday the
government could consider using any unspent budget cash to buy
dollars alongside the central bank's own purchases, to double up
efforts to prevent further peso strengthening.
He ruled out any possibility that the country would resort
to capital controls to tame the rise in the peso whose
"equilibrium" exchange he suggested was around 1,950 to the
dollar, weaker than the 1,904 it ended trading at on Friday.
"It's a matter of seizing this moment to buy dollars just
like the central bank is," he said, speaking from a banking
forum in Medellin, the country's second-biggest city.
Bank chief Uribe said improved industrial output would go
some way toward offsetting export competitiveness lost to a
stronger currency but a still-weak global economy was depressing
Uribe said the El Nino weather anomaly, which brings drier
weather to Colombia, could cause inflationary pressure, but
probably not until the first quarter of 2015, adding that any
impact would likely be finished by the second quarter.
Lack of rainfall during El Nino can drive up food prices
when crops are affected and may boost the price of electricity
as the nation uses more expensive gas-powered plants if water
levels drop too far at its many hydroelectric dams.
Inflation for the year in 2014 could be a little above or
below 3 percent, the center point of the bank's 2-4 percent
target range for this year, Uribe said, adding that the interest
rate rise sought to head off inflation pressures early on.
"It is a signal of prudence," he said.
(Additional reporting by Nelson Bocanegra and Carlos Vargas in
Medellin; Editing by Andrew Hay and Ken Wills)