* Uribe happy about economic growth, inflation rates
* Concerned about shocks coming from EU, US in medium term
* Foreign reserves rise, could help protect economy
By Helen Murphy and Eduardo Garcia
BOGOTA, May 24 Colombia's central bank chief
said on Friday his main challenge over the medium term was
preparing the nation for a normalization of U.S. monetary
policy, possible rate hikes by developed nations and a drop in
After years of near-zero interest rates, the United States
is showing signs that an end to expansive monetary policies
could occur in two or three years as its economy gains steam,
Jose Dario Uribe told the Reuters Latin America Investment
"In the medium term, or maybe further down the line,
probably the biggest challenge from the point of view of
monetary policy is to be well prepared for a process to
normalize monetary policy, in particular in the United States,"
said Uribe, who heads the seven-member board at the central
That could slow capital flows into emerging markets like
Colombia, which made its currency among the strongest worldwide
Colombia would be able to adjust its monetary policy easily
if the United States chose to implement counter-cyclical
policies, but the country may struggle if debt problems in
Europe and higher inflation in industrialized countries lead to
higher interest rates there, Uribe said.
"This type of interest rate hikes could of course be more
traumatic and one must be permanently thinking about the
possibility," Uribe said.
The central bank last month ended a five-month cycle of
interest rate cuts - leaving the benchmark interest rate at 3.25
percent - after the government unveiled measures to weaken the
peso and bolster the slowing economy.
But with inflation near the bottom end of the bank's 2
percent to 4 percent target range, policymakers may now opt to
take a neutral approach to monetary policy in the short term, as
they wait for the rate cuts to have effect.
"To be honest, I see that the Colombian economy is going to
grow more than 4 percent this year and inflation is going to be
around 3 percent. So I see that it's really good," Uribe said in
an interview at his Bogota office.
"But what makes me a bit uneasy is that I look forward and I
see shocks that could eventually happen and (I wonder) what's
the best way to prepare for those shocks."
Uribe, who has been at the helm of the bank since 2005, also
expressed concern that commodity prices may drop further.
Colombia is a leading exporter of oil, coal and coffee. The
value of the country's exports has fallen for five straight
months, slipping 20 percent from March 2012.
Uribe hinted that the central bank's cycle of expansive
monetary policy may have slowed down, or stopped altogether.
"One is relaxed about the decrease in interest rates because
the economy needs that decrease ... but we also know that low
interest rates for long periods of times could lead to high-risk
The central bank has engaged in currency intervention,
buying at least $30 million daily on the spot market in a bid to
weaken the peso, which last year gained 9 percent, cutting into
the revenues of exporters and manufacturers.
Actual, as well as verbal intervention by Uribe and Finance
Minister Mauricio Cardenas, have weakened the peso by 5.4
percent this year.
"Foreign reserves have increased greatly. Last year, we
bought almost $5 billion. ... This year, we will be buying at
least $3.5 billion. Let's see what we do for the rest of the
year. We already have foreign reserves that are close to $40
billion," Uribe said.
He said high foreign reserves could help protect the
Colombian economy from external shocks.