4 Min Read
BOGOTA, April 25 (Reuters) - Colombia's central bank unexpectedly raised the benchmark lending rate for the first time in more than two years on Friday, as policymakers sought to ward off inflationary pressure as economic growth gathers pace.
The following is a translation by Reuters of the bank's statement accompanying the decision:
The Board of the Central Bank at its meeting today decided to raise the interest rate by 25 bp, and took it to 3.5%. For this decision, the Board took into consideration the following aspects:
In March, inflation and the average of the four basic inflation measures continued their convergence towards its target of 3 percent. For its part, inflation expectations for the year by economic analysts and those implicit in sovereign bonds, have fluctuated around the long-term inflation target.
The macroeconomic prognostic indicates that internal demand will continue growing at a good pace and that the economy will approach its full productive capacity in 2014. At the same time, the unemployment rate, not taking seasonal factors into account, has maintained its downward trend and is reaching the lowest level so far this century.
As much as inflation is converging to the 3% target, the different real interest rates have been falling. In March, the growth in total credit accelerated slightly, driven by the behaviour of lending to businesses and mortgages.
Risk premiums for several emerging economies have fallen recently, financial assets in local currency have risen in value and their currencies have appreciated versus the dollar. The prior changes have been accentuated in Colombia, especially in the public debt market, as a result of greater inflows of foreign capital.
Recent global economic activity data suggests that the world recovery will continue in 2014. In the United States the most recent figures indicate that its economic activity could maintain a gradual recovery, while expanion in the Euro zone would continue at a modest pace. The slow-down of some emerging economies could accentuate. With that, it is probable that in 2014 average growth of trade partners in Colombia would be similar to the increase registered in 2013 and that the average of the terms of trade remain at high levels.
Expectations for a slow adjustment in liquidity in the United States are maintained. In this way, it is expected that the expansive monetary stance in other advanced economies will persist for a prolonged period. External interest rates have not presented significant changes and remain at low levels although above the average seen in 2013.
In the circumstances described, the Board considers that macroeconomic stability and the current convergence of inflation towards the long term goal, are compatible with a slightly less expansive monetary policy stance, a little less expansive than the current one. It also considers that a gradual and opportune adjustment of the aforementioned reduces the need for sudden adjustments in the future and ensures macroeconomic stability.
Taking all of this into account and the delays with which monetary policy actions affect inflation and growth, the board considered prudent to increase by 25 basis points the intervention interest rate.
The Board will continue to monitor carefully the behaviour and forecasts for economic activity and inflation in the country, of the financial asset markets and the international situation. Finally it reiterates that the monetary policy will depend on available information.
Editing by Peter Murphy