Colombia Domestic Economy Requires Higher Rates, Vallejo Says

Colombia’s domestic economy shows a “very clear” need for higher interest rates, central bank director Cesar Vallejo said.

The central bank’s seven-member board nevertheless decided to leave borrowing costs unchanged at its last two policy meetings since the effects of the global financial crisis on Colombia are unpredictable, Vallejo said in an interview in Bogotá yesterday.

Colombian policy makers held their benchmark rate unchanged at 4.5 percent for a second straight month in September.

The central bank’s announcement last week that it will buy or sell $200 million dollars in the spot market when the peso moves more than 2 percent from its 10-day moving average was taken “in a moment of emergency” and will be withdrawn when the current bout of “excessive volatility” is over, Vallejo said.

Vallejo said that Colombia’s lower-than-expected budget deficits this year may be partly due to an anti corruption drive. 

A fall in public works spending since last year could be traceable to ministries’ and regional governments’ fear of being investigated for irregularities, said Vallejo, who headed the National Planning Department in the 1.980s.