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By Peter Murphy and Nelson Bocanegra
BOGOTA, June 20 Colombia's central bank on
Friday raised its benchmark lending rate by 25 basis points for
the third straight month, an increase aimed at containing a
recent rise in still-low inflation after a surge in
first-quarter economic growth.
The seven-member policy-making board increased borrowing
costs a quarter point to 4.00 percent, the first time the rate
has been that high since January 2013. The decision, reached
unanimously, came a day after strong 6.4 percent first-quarter
growth was announced.
The bank also extended and doubled the size of its dollar
purchases with a plan to buy up to $2 billion between July and
September to bolster reserves and compound ongoing efforts to
weaken the peso which the government says is too strong.
"We have ample and sufficient ammunition to take part in the
foreign exchange market ... to avoid the peso being
over-valued," Finance Minister Mauricio Cardenas, a member of
the central bank's board, told reporters after the meeting.
The existing dollar purchase program expires at the end of
June with planned purchases of $1 billion since April.
Cardenas said expanded currency intervention would also
plump up a "cushion" against external shocks to which emerging
markets have been particularly vulnerable in recent years, with
low interest rates in large economies redirecting speculative
capital towards developing economies.
Cardenas said this week Colombia's strong first-quarter
growth was the fastest in Latin America and bucked a slowdown in
growth that the region's largest economies were currently
A Reuters survey of analysts on Monday showed that 20 of 23
expected the quarter-percent rate increase, but four switched
their view on Thursday to a half-percent increase after the
surprisingly strong growth data was released.
Friday's rate increase was the third quarter-point rise in
as many months. Policymakers say smaller incremental increases
to contain inflationary pressures early will avert larger
monetary adjustments later on.
Bank director Jose Dario Uribe said the economy's strong
performance could lead to greater inflationary pressures and
take full-year 2014 inflation above 3 percent, the midpoint of
the central bank's 2-4 percent target inflation range.
Colombia's president, Juan Manuel Santos, was re-elected to
a second term last Sunday and his next government will be
inaugurated in early August. There is no indication so far of
whether he will appoint a new finance minister.
(Additional reporting by Julia Cobb and Carlos Vargas; Editing
by Chizu Nomiyama and Nick Zieminski)