Colombia Can Keep Stimulus Until at Least Year End, Cano Says

Posted on Jun 11 2013 - 5:48pm by Editor

Bloomberg / Colombia’s central bank can maintain its current monetary stimulus until at least the end of the year without putting its inflation target at risk, central bank co-director Carlos Gustavo Cano said.

‘We are growing below potential, with an output gap that is still negative, and these conditions allow the central bank to contribute in a fundamental way, via an expansionary monetary policy, as we have now,’’ Cano said today at a seminar in Bogota. “We can do that, because our inflation goal isn’t in doubt. Conditions are there so that, barring accidents, we could maintain an expansive cycle until at least the end of this year.”

Cano and his colleagues on the central bank’s policy committee held the policy rate at 3.25 percent at their April and May meetings, after cutting it by 2 percentage points over the last year to revive the slowest growth in the Andean region. Economists in the central bank’s most recent monthly survey forecast that policy makers will raise the benchmark rate three quarters of a percentage point to 4 percent in the first quarter of next year.

Annual inflation slowed to 2 percent in May, from 2.02 percent in April, after touching a 6-decade low of 1.83 percent in February. The central bank seeks to get inflation back to the 3 percent midpoint of its target range, Cano said.

“Inflation of 2 percent isn’t good, just as inflation at 4 percent isn’t good,” Cano said. Finance Minister Mauricio Cardenas said in a June 7 interview that inflation will probably end the year closer to 2.5 percent than to 3 percent.

The economy expanded by about 2.8 percent in the first quarter from a year earlier, Cardenas said, after expanding 4 percent in 2012. Colombia’s national statistics agency publishes its first quarter gross domestic product report on June 20.