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Monday, March 26, 2012

Colombia quarterly Gdp slows as rate hikes take effect

Colombia's economy grew at its slowest pace in a year in the fourth quarter versus the previous three months, a sign the central bank's year long cycle of rate hikes to prevent overheating is taking effect.
The slower quarter on quarter growth, which was in line with weaker than expected january retail sales and industrial production, could convince the central bank to pause its rate increases at its friday meeting after raising rates to 5.25 percent in february.
The tepid fourth-quarter expansion of 1.3 percent could ease concerns that rapid growth in consumer credit and a brisk full-year growth rate of 5.9 percent in 2.011 one of the fastest in Latin America are spurring inflation.      
   
"We are of the view that the central bank should leave the policy rate unchanged at 5.25 percent at tomorrow's meeting and eventually adopt macro-prudential measures in order to moderate the exuberant credit dynamics," Goldman Sachs analyst Alberto Ramos said.

Macro-prudential measures range from an increase in bank reserve requirements to credit controls to rein in consumer demand and borrowing. 

They are seen as helping fight inflation without raising interest rates, which could lead to currency appreciation that makes domestic businesses less competitive.

Leaders of the coffee, flowers and banana industries have complained that interest rate hikes are making it harder for them to export their products.

Ample credit has led families to tap bank financing to buy houses, cars and home appliances, creating concerns about excessive indebtedness.

Strong growth

Colombia has brought in billions of dollars in foreign investment over the last decade thanks to a U.S. backed offensive against Marxist rebels. 

The military campaign has expanded consumer activity and boosted the crucial oil and
mining industries.

That helped it clock a sturdy growth rate of 6.1 percent in the fourth quarter versus the same period a year earlier. 

A poll of 40 analysts had projected growth of 5.85 percent for the quarter.

The mining sector grew at the fastest clip, at 18.1 percent in the quarter; followed by construction, which expanded 10.7 percent; and the finance sector, which grew 6.4 percent.

The country has remained largely shielded from global economic troubles that have pummeled major Latin American countries, including Mexico and Brazil.

"The growth for the year confirms that the economy is growing above its potential. It's an encouraging figure given the performance of the global economy," said Patricia Gonzalez, an economist with Banco de Bogotá.

The central bank has raised rates nine times over the last year, to 5.25 percent, bucking a trend of rate cuts in the region. 

O f 40 analysts in the poll, 21 predicted policy makers would raise the lending rate by 25 basis points to 5.50 percent on Friday.

Colombia's industrial production in january rose 2.4 percent from a year earlier, compared with a consensus of 4.0 percent, while retail sales grew 4.9 percent versus a market expectation of 7.0 percent, according to Goldman Sachs.

In the last meeting in february, an unspecified number of the central bank board members opposed raising the benchmark interest rate on the grounds that efforts to cool the economy had already taken effect.  

Analysts took that as a sign that the board is leaning at least toward a pause in rate hikes.

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