Colombia's central bank raised its benchmark interest rate for a third straight monetary policy meeting Friday and the government unveiled a dollar-buying plan aimed at limiting the peso's gains against the U.S currency.
The central bank said in a statement it lifted its key interest rate by 25 basis points, putting the new rate at 3.75%.
That decision was widely expected and matched the results of a Dow Jones Newswires survey in which all seven economists projected such an outcome.
The central bank also signaled that it plans to continue hiking rates while adding that it doesn't think it will be necessary to increase them to the high levels seen in previous economic cycles.
Alberto Ramos, an economist with Goldman Sachs, said that the strength of Colombia's economy is clear and that inflation seems to be well under control, suggesting rates may only get to 4.5% or 5.0% by the end of the year.
"Our calculations suggest the rate normalization cycle does not need to be very aggressive," Ramos said in a report.
In explaining the rate increase, the bank said last year's economic growth of 4.3% was better than expected and said "the information from the first quarter of this year suggests the vigor of the economy continues."
The bank also lifted its official 2011 economic forecast by 50 percentage points, putting the forecast range at 4% to 6%.
It said it expects growth to probably be in the higher end of that range, but said torrential rains over the past several months present a downside risk to growth that shouldn't be discounted.
Meanwhile, Finance Minister Juan Carlos Echeverry, who is a member of the central bank board, announced a plan in which the government will buy $1.2 billion in greenbacks over the course of 2011 on the forex spot market.
The dollars will be deposited into a fund that the government will use next year to pay down dollar-denominated debt, Echeverry said.
Echeverry said that the dollar buying program by the government will be discretionary and will not have a minimum daily amount established.
The minister added that the government plans to keep abroad any dollar-income this year to avoid strengthening the peso.
The dollar buying program for the new fund is separate from the bank's own dollar-buying program that's been in place for months in which it purchases at least $20 million a day on the spot market to tamp down peso strength.
The central bank's dollar purchases have not been enough to curb the peso, which is at its strongest level since 2008.
That program will continue as planned at least until June 17.
Colombia has been forced to buy dollars in the forex market as a way to prevent its currency from gaining too much strength against the dollar.
The strong peso, which has risen 5% against the dollar in April alone and closed Friday at COP1,768.00 to the dollar, is hurting Colombia's important export sector, as it makes their products too costly abroad.
Echeverry said he expects the dollar-buying for the new fund will have an impact on the Colombian peso's foreign exchange rate.
The decision to buy $1.2 billion in the spot market this year is likely to stabilize or at least slow its surge against the dollar over the coming days, said Ricardo Bernal, an analyst with local brokerage firm Serfinco SA.
"A degree of stabilization over the next sessions is possible," Bernal said.
The central bank said in a statement it lifted its key interest rate by 25 basis points, putting the new rate at 3.75%.
That decision was widely expected and matched the results of a Dow Jones Newswires survey in which all seven economists projected such an outcome.
The central bank also signaled that it plans to continue hiking rates while adding that it doesn't think it will be necessary to increase them to the high levels seen in previous economic cycles.
Alberto Ramos, an economist with Goldman Sachs, said that the strength of Colombia's economy is clear and that inflation seems to be well under control, suggesting rates may only get to 4.5% or 5.0% by the end of the year.
"Our calculations suggest the rate normalization cycle does not need to be very aggressive," Ramos said in a report.
In explaining the rate increase, the bank said last year's economic growth of 4.3% was better than expected and said "the information from the first quarter of this year suggests the vigor of the economy continues."
The bank also lifted its official 2011 economic forecast by 50 percentage points, putting the forecast range at 4% to 6%.
It said it expects growth to probably be in the higher end of that range, but said torrential rains over the past several months present a downside risk to growth that shouldn't be discounted.
Meanwhile, Finance Minister Juan Carlos Echeverry, who is a member of the central bank board, announced a plan in which the government will buy $1.2 billion in greenbacks over the course of 2011 on the forex spot market.
The dollars will be deposited into a fund that the government will use next year to pay down dollar-denominated debt, Echeverry said.
Echeverry said that the dollar buying program by the government will be discretionary and will not have a minimum daily amount established.
The minister added that the government plans to keep abroad any dollar-income this year to avoid strengthening the peso.
The dollar buying program for the new fund is separate from the bank's own dollar-buying program that's been in place for months in which it purchases at least $20 million a day on the spot market to tamp down peso strength.
The central bank's dollar purchases have not been enough to curb the peso, which is at its strongest level since 2008.
That program will continue as planned at least until June 17.
Colombia has been forced to buy dollars in the forex market as a way to prevent its currency from gaining too much strength against the dollar.
The strong peso, which has risen 5% against the dollar in April alone and closed Friday at COP1,768.00 to the dollar, is hurting Colombia's important export sector, as it makes their products too costly abroad.
Echeverry said he expects the dollar-buying for the new fund will have an impact on the Colombian peso's foreign exchange rate.
The decision to buy $1.2 billion in the spot market this year is likely to stabilize or at least slow its surge against the dollar over the coming days, said Ricardo Bernal, an analyst with local brokerage firm Serfinco SA.
"A degree of stabilization over the next sessions is possible," Bernal said.
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