June 28, 2013 / 6:47 PM / 4 years ago

UPDATE 2-Colombia's central bank holds key rate steady at 3.25 pct

* Rate decision was unanimous

* Benchmark rate held steady for third straight month

* Low inflation leaves policymakers room to stimulate growth

By Helen Murphy and Peter Murphy

BOGOTA, June 28 (Reuters) - Colombia’s central bank held its benchmark lending rate steady for a third straight month on Friday as benign inflation allowed policymakers to keep borrowing costs low enough to nourish anemic growth in the economy.

In a unanimous decision, the bank’s seven-member board kept the rate at 3.25 percent, as expected, holding borrowing costs at the lowest level in Latin America. No foreign exchange measures were taken.

Colombia has cut its key interest rate by 200 basis points since July last year to counter weak international demand for its commodity exports and a slowdown in domestic demand in the $330 billion economy. In March, the bank accelerated cuts, slashing the rate by 50 basis points to the current level.

“It is generally expected that Colombian economic growth will increase throughout the year to the extent that aggregate spending reacts to previous monetary policy decisions and to a national government plan,” the board said in a statement after releasing the rate decision.

In April, the government unveiled a series of measures aimed at stimulating growth in the manufacturing and agricultural sectors.

Annual growth in the first quarter was 2.8 percent, missing Finance Minister Mauricio Cardenas’ estimate of 3 percent, but meeting the central bank’s forecast. For full year 2013, the government has lowered its forecast to 4.5 percent from an earlier 4.8 percent, but most economists polled by Reuters think that is too optimistic.

Last year, economic growth eased to 4 percent from 6.6 percent in 2011.

Inflation is closer to the lower end of the bank’s target range of 2 percent to 4 percent, giving it some room to boost growth, according to analysts.

“The language of (Friday‘s) statement didn’t change too much from the last, and even though the board made mention of the recent situation in global markets and the tendency of higher interest rates in local debt markets it didn’t seem too concerned about its impact on Colombia’s economy,” Daniel Valandia, economist at Creditcorp Capital said in a note to investors.

Yields on local sovereign bonds have shot up about two percentage points in the last month on expectations the United States will rein in expansionary monetary policy, a notion reinforced by remarks by U.S. Federal Reserve Chairman Ben Bernanke last week.


Some economists had expected the board to alter its dollar purchase program after Bernanke’s comments that the Fed would likely slow the pace of stimulative bond purchases in 2013 if the U.S. economy continues to grow. The remarks caused the Colombian peso to weaken significantly.

Colombia’s central bank, headed by Jose Dario Uribe, has bought millions of dollars daily on the spot market for months to ease gains in the currency, which last year was among the world’s strongest, but some board members have raised concerns about the impact of continuing the program for too long.

The government is fighting to boost exports and industrial production, which have dragged down overall growth in the economy as factories have struggled with a strong peso.

Strong currencies hit exporters the most since salaries, pensions and health benefits are paid in local currency, but overseas buyers pay in devalued dollars.

The peso closed at 1,922.77 per dollar on Friday.

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