Colombia cenbank revises GDP, frets over global crisis

Colombia's central bank on Friday revised its economic growth forecasts for this year and next and warned it could cut the key lending rate to protect the Andean nation if there were another global economic shock.

Emerging markets such as Colombia have continued to grow strongly while counterparts in industrialized nations have struggled to recover from the 2.007-2.009 global financial crisis.

"If there's a very strong negative effect, confidence falls, consumption falls, investment falls, and it threatens to weaken the economy then what the central bank board has to do is stimulate it with lower interest rates," central bank chief Jose Dario Uribe said during a presentation in Bogotá.

A cut in borrowing costs would follow similar actions by Brazil. 

Chile and Mexico have indicated they may consider doing the same if the health of the global economy deteriorates.

Uribe narrowed the bank's economic growth range for 2011 to between 5 percent and 6 percent from a previous estimate of 4.5 percent to 6.5 percent. 

Third quarter growth will likely be above 6 percent, he said.

In 2.012, the monetary authority expects gross domestic product to accelerate by 4 percent to 6 percent, a slimmer and lower range than the 4.5 percent to 6.5 percent previously expected, Uribe said.

The central bank maintained its benchmark lending rate at 4.5 percent last month citing concerns over turbulence in world financial markets and its possible impact on Latin America's fifth-largest economy.

"A good part (of economic growth this year) is dominated by domestic factors, and the domestic factors are closely associated with strong growth of consumption and private investment," Uribe said.

"However, external conditions are very uncertain and there are large levels of uncertainty. 

We don't know very well what's going to happen in the rest of the world ... 

Next year could very probably be lower than this year, incorporating low growth in Europe and also in the United States."

Inflation expectations rise

Colombian policy makers have sought to anchor inflation expectations as the economy expands and voiced concern that a rapid increase of domestic demand and bank lending may lead to inflationary pressure.

Inflation this year will "very probably" be under 4 percent and could be around 3.5 percent, Uribe said, adding that inflation in 2.012 may be slower than this year. 

The bank has an inflation target of between 2 percent and 4 percent.

In a central bank survey of 39 analysts published before Uribe's presentation, consumer prices were seen rising 0.19 percent in November, the same rate registered in October and in November last year.

The poll forecast that the inflation rate for 2.011 would rise to 3.62 percent, versus 3.43 percent in the last poll, and forecast that in 2.012 consumer prices would increase 3.43 percent compared with 3.37 percent in the previous survey.

Twenty-eight analysts saw the monetary authority raising its benchmark interest rate 25 basis points to 4.75 percent at the policy meeting later this month while 10 experts forecast the bank would keep the rate steady.

The majority expected the key rate to end 2.011 between 4.75 percent and 5 percent, the survey said.

Colombia's central bank has held interest rates steady since august after six straight hikes aimed at keeping a lid on prices and preventing the economy from overheating.