Bloomberg – Colombia kept borrowing costs unchanged for the first time in six months as policy makers seek to evaluate the combined effects of Latin America’s lowest interest rate and the government’s fiscal stimulus.

Banco de la Republica, led by bank Governor Jose Dario Uribe, held its benchmark interest rate at 3.25 percent today in line with the forecasts of 19 of 31 analysts surveyed by Bloomberg. Twelve analysts predicted a quarter-point cut. Uribe said that the board’s decision was unanimous.

“The Colombian economy is currently growing below its potential and inflation is below 3 percent,” policy makers said in their statement following their announcement. “In this context, the balance of risk assessment indicates the need to maintain the policy interest rate at 3.25 percent, while waiting for more information.”

The central bank has lowered borrowing costs at seven of its last ten meetings as growth decelerated to the slowest pace in the Andean region and the inflation rate fell to a six-decade low. After unexpectedly quickening the pace of rate cuts with a half-point reduction in March, policy makers will now probably leave the benchmark unchanged through year-end, said Camilo Perez, chief economist at Banco de Bogota, who correctly forecast today’s decision.
Stimulus, Growth

Colombia has cut its policy rate by 2 percentage points over the last year, the most among major Latin American economies. As industry continued to weaken, the government of President Juan Manuel Santos this month announced a 5 trillion- peso ($2.7 billion) stimulus plan, of which $900 million will be spent in 2013. The measures include an expansion of a housing program for low-income families, subsidized mortgages and cheaper energy costs.

Finance Minister Mauricio Cardenas said in an April 25 interview that the measures will boost 2013 growth by 0.7 percentage point, to 4.8 percent, from 4 percent last year. Cardenas estimates that the economy can grow at 4.8 percent a year without stoking inflation.

Consumer prices rose 1.91 percent in March from a year earlier, lagging the median forecast in a Bloomberg survey for a fifth straight month. In February, the inflation rate fell to its lowest level since 1955.
Inflation Target

Uribe said in an April 16 interview that he expects inflation to return to the midpoint of its target range in 2014. Colombia targets inflation of 3 percent, plus or minus one percentage point.

Consumer prices will rise 3.02 percent over the next year, according to an April central bank survey of economists, down from a 3.04 percent forecast in March.

Industrial output fell 4.5 percent in February from a year earlier, the biggest decline since 2009 and the fourth straight contraction. Retail sales grew 0.6 percent from a year earlier, the slowest pace in four months, while consumer confidence fell to a two-year low.

Yields on the government’s 10 percent peso debt due in 2024 The peso weakened 0.2 percent to 1834.44 per dollar. The rate decision came after the close at 1 p.m. Bogota time of the local bond and foreign-exchange market.

The currency has weakened 0.5 percent this month after the price of oil, Colombia’s biggest export, fell, and the government said it would create incentives for pension funds to invest more outside the country.