Colombia keeps rate at 4.75% citing better world markets

Colombia kept interest rates unchanged for a second straight month as policy makers judge that bond buying plans by the U.S. Federal Reserve and european Central Bank will ease the risk of a global slump.

Banco de la República, led by bank Governor Jose Dario Uribe, left its benchmark interest rate at 4.75 percent today, in line with the forecasts. 

Five analysts forecast a quarter point reduction. Uribe said the decision wasn’t unanimous.

“Global financial conditions have improved, partly because of policy action by the world’s main central banks,” Uribe said, reading the central bank’s policy statement in Bogotá.

 “Volatility has fallen, and some asset prices have gone up.” 

Uncertainty over banks and public finances remains high, he said.

The central bank lowered borrowing costs at its july and august meetings, citing weakening global growth that curbed demand for the country’s exports. 

Policy makers will probably keep the 4.75 percent rate until the end of 2.013, as their concern about a global downturn ease, said Francisco Rodriguez, a New York-based economist at Bank of America Merrill Lynch.

“Those fears have receded with the decisions taken by those countries’ monetary authorities,” Rodriguez said. 

The central bank could return to cutting rates if the world economy takes another turn for the worse, Rodriguez added.

The Colombian Treasury bought $641 million with oil royalties in the year through Oct. 18, and the figure will rise to about $1 billion by the end of the year, Finance Minister Mauricio Cardenas said today after the decision.

The Treasury has the wherewithal to buy more dollars above this amount using non-oil money, Cardenas told reporters in Bogotá.

We have the reserve ready. 

We haven’t used it, but we’ll use it at the moment we consider necessary,” he said.

At its september meeting, the central bank extended a $20 million daily dollar purchase program until march, from a previous end date of november.

Cardenas said that industry and agriculture are the government’s main worries. 

Industrial output fell 1.9 percent in august from a year earlier, its fourth year-on-year decline since march. 

Economists had forecast a 1.1 percent increase.

At the same time, exports have declined for three straight months on a year-on year basis, while the trade deficit widened for a second month in august.

Colombian manufacturers have been battered by weak global growth and by the peso’s 6.1 percent rally against the dollar this year, the sixth best performance among the 31 most-traded currencies.

Consumer prices rose 0.29 percent in September, more than the 0.16 percent median forecast. 

Annual inflation slowed to 3.08 percent, close to the midlle point of the central bank’s target range.

Colombia has the lowest inflation rate in Latin America after Chile among the region’s seven biggest economies. 

The central bank targets inflation of 3 percent, plus or minus one percentage point.

Colombia peso bond yields fell today before the decision on speculation the bank would lower rates.

The yield on the 9.25 percent peso-denominated debt due may 2.014 fell one basis point, or 0.01 percentage point, to 4.87 percent in Bogotá, according to the central bank.

Economists raised their 2.012 inflation forecast to 3.06 percent in a central bank survey published on oct. 11, up from 3 percent in the September survey.

Gross domestic product grew 4.9 percent in the second quarter from a year earlier, the third-fastest expansion among Latin America’s seven biggest economies after Perú and Chile.

‘Central bank research shows that the colombian economy can grow at a long-term pace of 4.3 percent to 5.3 percent without stoking inflation, Uribe said this month.

Uribe was last month appointed for a third four-year term at the bank’s helm, starting january.