Colombia Central Bank : One Director Favors Future Rate Cut

Colombia is gearing for the impact of europe's debt crisis, with at least one member of the central bank's monetary policy board advocating future rate cuts and the government announcing that it is ready to increase public spending to offset an economic slowdown.

The minutes for the central bank's last monetary policy meeting, where it unanimously decided to keep in check for a third straight month its benchmark interest rate at 5.25%, confirm that the bank's concerns over inflation have eased in recent months.

"With the current interest rate levels in our core scenario, the growth of the economy is close to its actual potential, and the inflation projections are attaining the 3% target," the minutes published Friday said.

The central bank expects the economy to grow between 4% and 6% for 2.012 and has an inflation target range of 2% to 4% for the year. 

Inflation for the 12 months through may stands at 3.44%.

While inflation remains under control, other recent data suggest Colombia's economy could be slowing more quickly than policy makers had anticipated. 

Industrial production in march posted its first year on year decline in three years.

The central bank's seven member monetary policy board is now focused on the impact of the European sovereign debt crisis and its effects on Colombia's economy, which relies heavily on commodity exports.

The central bank is worried that a greek exit from the euro could trigger a new global recession. 

If this happens "the negative effects on the Colombian economic activity might be slightly strong," the minutes said.

As a result, one board member, who voted in favor of keeping unchanged the bank's key lending rate, sees "deceleration signs and is concerned about the poor performance of the industry" sector in the Colombian economy.

This director advocated future rate cuts if inflation remains under control and the economy continues to slow.

According to this director "if the current status quo is maintained, it would be necessary to undertake a monetary policy relaxation phase," the minutes said.

Juan Carlos Echeverry, who as finance minister sits on the central bank's monetary policy board, said that the government is ready to increase public spending if necessary to offset an economic slowdown.

Tax collection has performed better than expected while financing costs remain low, giving the government "sufficient liquid resources to finance its budget and, should it be desirable, to implement counter cyclical fiscal policies."