Colombia’s central bank is expected to raise its benchmark interest rate by 25 basis points to 4.5 per cent on Friday amid strong peso appreciation.
It would be the sixth consecutive rise for Colombia, whose economy is forecast to grow at 5 per cent this year, according to the International Monetary Fund.
Inflation is still within the target range at 3.23 per cent, but strong inflows of foreign investment have stoked fears of overheating.
The peso climbed 8.2 per cent against the dollar this year, ramping up pressure on Colombian producers and manufacturers.
“There is early hope that the Colombian economy has begun to rebalance away from domestic demand led and towards export-led manufacturing growth,” says UK-based Capital Economics in a research note.
“But with the exchange rate still appreciating and consumer credit growth booming, we think that it is too soon to sound the all-clear.
This tips the balance in favour of interest rates being hiked by a further 25bps to 4.5 per cent.”
In a review of the Colombian economy published this week, the IMF discouraged the use of capital controls to curb peso appreciation.
The central bank has been buying at least $20m a day to stem gains in the peso.
Juan Manuel Santos, Colombia’s president, said this week the government planned to continue with its interventions to rein in the peso.
He also appealed to GrupoSura not to pay for its $3.9bn acquisition of ING’s Latin American assets outside of Colombia.
“The central bank will continue with its policy of protecting the exchange rate.
And the government will continue the interventions it has been doing,” Santos said in a statement.
It would be the sixth consecutive rise for Colombia, whose economy is forecast to grow at 5 per cent this year, according to the International Monetary Fund.
Inflation is still within the target range at 3.23 per cent, but strong inflows of foreign investment have stoked fears of overheating.
The peso climbed 8.2 per cent against the dollar this year, ramping up pressure on Colombian producers and manufacturers.
“There is early hope that the Colombian economy has begun to rebalance away from domestic demand led and towards export-led manufacturing growth,” says UK-based Capital Economics in a research note.
“But with the exchange rate still appreciating and consumer credit growth booming, we think that it is too soon to sound the all-clear.
This tips the balance in favour of interest rates being hiked by a further 25bps to 4.5 per cent.”
In a review of the Colombian economy published this week, the IMF discouraged the use of capital controls to curb peso appreciation.
The central bank has been buying at least $20m a day to stem gains in the peso.
Juan Manuel Santos, Colombia’s president, said this week the government planned to continue with its interventions to rein in the peso.
He also appealed to GrupoSura not to pay for its $3.9bn acquisition of ING’s Latin American assets outside of Colombia.
“The central bank will continue with its policy of protecting the exchange rate.
And the government will continue the interventions it has been doing,” Santos said in a statement.
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