Colombia CenBank Holds Rate at 4.5% as Oil Prices Crimp Growth

Politics Reuters

Colombia's central bank board voted unanimously on Friday to keep its key lending rate unchanged for a sixth straight month, as economic growth slows in the face of depressed oil prices.

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The seven-member board voted to maintain the lending rate at 4.5 percent, meeting the forecast of all analysts in a Reuters survey this week. The board expects a most-probable growth rate in gross domestic product of 3.6 percent in 2015, versus an expected 4.8 percent for 2014.

Central bank chief Jose Dario Uribe said consumer confidence remained strong with much of the economic expansion driven by robust demand and a construction boom.

"New information for the fourth quarter of 2014 suggests that domestic demand remained dynamic and net exports have diminished more than expected," the central bank said in a statement published after the board's meeting.

The Andean nation posted an unusually large trade deficit in December of $1.45 billion. Its trade balance has been negatively affected by the sharp drop in the price of oil, its most valuable export, since June last year.

"The bank maintained its dovish tone, emphasizing deep uncertainty about the impact of the oil price fall on trade terms and internal demand," brokerage Alianza Valores said in a note to investors.

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The drop in prices for crude and other commodities is slowing, the central bank said, but may have a permanent effect on trade and government revenues.

"In recent weeks oil prices and several commodities which Colombia exports and imports, have stopped falling," the central bank said. "Some of the decline in trade terms will be permanent and will be reflected in lower national income."

Ten out of the 17 analysts in the Reuters poll said the board would hold the key lending rate during 2015. The remainder said the rate would eventually be lowered to 4 percent or 4.25 percent.

The central bank's unanimous vote on Friday may put a damper on speculation about a looming change in the rate. Minutes from January's meeting had sparked questions about continued cohesion on holding the rate, with one board member saying a cut should be considered.

The comments contrasted with others made earlier this month by board member Cesar Vallejo, who told Reuters that using interest rates to boost growth risks stoking inflation.

"As we expected, today's meeting was too early for the lone explicitly dovish member, as revealed by the minutes, to bring the rest of the board to his/her side," Citibank said in a note to investors.

 

(By Julia Symmes Cobb and Peter Murphy; Additional reporting by Nelson Bocanegra, Luis Jaime Acosta, Carlos Vargas and Monica Garcia; Editing by Helen Murphy, Bernard Orr)