Colombia’s central bank held its benchmark interest rate steady at 3.25 percent, as expected, saying the economy continues to grow below its potential and inflation is below 3.0 percent but it is “particularly difficult to interpret current trends in economic activity and its projection.”
But recent rate cuts and proposed fiscal policy measures should help raise economic growth toward the country’s productive capacity and this will help inflation move closer to the central bank’s target.
“In this context, the balance of risk assessment indicates the need to maintain the policy interest rate at 3.25%, while waiting for more information,” the central bank said.
The Central Bank of Colombia central bank has cut rates seven times by a total of 200 basis points since July last year, most recently by 50 basis points in March.
Economic activity in the first quarter of this year has slowed from 2012, the central bank said, with household consumption growing at a slower rate along with a deterioration in industry.
But the recent behaviour of some components of aggregate spending and fewer working days in the first quarter compared with last year has made it difficult to interpret current trends, the bank said.
“However, economic growth is expected to increase throughout the year in reaction prior monetary policy actions and programs recently announced by the national government,” the bank said.
The central bank’s staff forecasts that Colombia’s Gross Domestic Product should expand by 3-5 percent this year, with 4.3 percent the most likely figure, up from 2012’s 4.0 percent last year. In 2011 Colombia’s economy grew by 6.6 percent.
Colombia’s government has proposed a wide-ranging 5 trillion peso stimulus plan to revive industry and agriculture, boost housing, reduce energy costs and measures to cut company costs.
Colombia’s inflation rate accelerated slightly to 1.91 percent in March from a 60-year low of 1.83 percent in February, but still well below the central bank’s target range of 2-4 percent.
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