Colombia may grow faster than expected 5.5% in 2010, Uribe says

Colombia’s economy may expand as much as 5.5 percent in 2011, more than policy makers had been projecting, as strong expansion in credit and consumer confidence create “perfect” conditions for growth, central bank President Jose Dario Uribe said.

Latin America’s fourth-largest economy will be running close to full capacity in the second half of 2011, after expanding 4.3 percent in 2010, Uribe said in an interview in Washington yesterday.

“Consumer confidence is increasing again, credit growth is very dynamic,” said Uribe, 52, in an interview in Washington yesterday during the semi-annual meetings of the International Monetary Fund.

“There are a lot of signals that the economy is strong, and is growing fast.”

The central bank’s 2011 economic growth projection is 4.5 percent, though this could be revised in the bank’s next quarterly inflation report to be published in roughly three weeks, Uribe said.

Policy makers raised Colombia’s benchmark interest rate by a quarter point for a second straight month in March to 3.5 percent, noting the rise in consumer confidence, bank lending and retail sales.

As Colombia’s economic expansion gains momentum, inflation has been accelerating. 

Annual inflation was 3.19 percent in March, up from a five-decade low of 1.84 percent a year earlier.

The central bank forecasts inflation near the 3 percent midpoint of its target range at the end of 2011 and 2012, Uribe said.

Economists cut their forecasts for year-end inflation to 3.31 percent in a central bank survey published last week, from 3.48 percent in the march survey.

“I see the Colombian economy in a perfect situation, on a very stable and very sustainable path,” said Uribe, who has a doctorate in economics from the University of Illinois at Urbana-Champaign, where he studied alongside Alexandre Tombini, the president of Brazil’s central bank.

The peso appreciated 1.1 percent last week to 1798.43 per dollar, its strongest level since October.

The currency has gained 6.1 percent against the dollar this year, the best performer of seven Latin American currencies.

Recent gains in the peso are a result of companies bringing in funds from overseas to pay local taxes, Finance Minister Juan Carlos Echeverry said in an interview in Washington.

Companies are slated to pay taxes between April 8 and April 25.

The currency’s strength has not prevented the “tradeables” sector of the economy from growing as fast as non-tradeables, Uribe said. 

Tradeables are goods that can be exported or substituted by imports, and so are sensitive to changes in the exchange rate.

Controls, vigilance

Uribe said he sees no need for the sort of capital controls used in Brazil to stem gains by the peso.

Such capital controls create distortions and should not be implemented without “clear evidence” that the benefits would outweigh the costs, Uribe said.

Colombia’s credit rating was raised one-level to BBB- by Standard & Poor’s last month, restoring the investment grade status lost in September 1999.

The yields on Colombia’s peso bonds fell to their lowest level in three months last week, as economists cut inflation forecasts and as bets mounted that funds from government securities maturing next month will be reinvested in debt.

The central bank needs to watch for signs that optimism about the Colombia’s economy could lead consumers and companies to take on too much debt, Uribe said.

“I’m not worried, but you have to always be alert that we don’t go mad and spend in excess,” Uribe said.

Gross credit expanded 19 percent to 183 trillion pesos ($102 billion) in the year through february, the fastest pace since october 2008, according to the financial regulator.

Asset price bubbles inflated by capital inflows could be dealt with by regulation of financial markets, Uribe said.