Colombia left interest rates unchanged, after raising them in November, as falling inflation expectations give policy makers room to gauge the impact of the European debt crisis.
The central bank’s seven-member board, led by Jose Dario Uribe, held the overnight rate at 4.75 percent today, as forecast by 26 of 32 economists surveyed by Bloomberg. Six analysts expected the bank to raise the rate to 5 percent.
Recent data such as industrial production, retail and vehicle sales show the Colombian economy cooling, calming investors’ fears of overheating, said Julian Marquez, an analyst at Interbolsa SA, Colombia’s biggest brokerage.
“These indicators have gone from flashing red to yellow,” Marquez said, speaking by phone from Bogota before the rate decision. “The last interest rate increase anchored inflation expectations. We all know that if there is any increase in inflation, the central bank is going to react.”
Annual inflation slowed more than expected in November, to 3.96 percent, after breaching the upper limit of the target range in October for the first time since 2009. Colombia targets inflation of 2-4 percent.
Colombia has adopted a more conservative inflation-fighting stance than other central banks in the region, some of which are signaling rate cuts to try and shore up growth, Marquez said. The bank raised rates a quarter percentage point in November.
Policy makers in Chile and Mexico this month said they may cut borrowing costs if the European crisis worsens, while Brazil has been reducing rates since August in anticipation of a downturn. The European Central Bank, Australia, Denmark and Norway all cut rates this month.
Holding borrowing costs steady is likely to please President Juan Manuel Santos, who on Dec. 6 said that it wouldn’t be “appropriate” for Banco de la Republic to raise rates even as central bankers around the world are slashing them.
Most economists in a central bank survey published Dec. 12 forecast policy makers will increase the key rate by 25 basis points, or 0.25 percentage point, to 5 percent in March.
The gap between yields on government inflation-indexed bonds due 2013 and similar-maturity fixed-rate debt, a gauge of investors’ price increase expectations, fell to 3.6 percentage points today, from 3.89 before the central bank’s November rate increase.
Retail sales rose 8.1 percent in September from a year earlier, slower than the 11.3 percent forecast in a Bloomberg survey. Industrial output growth slowed to 5.2 percent, from 9.7 percent.
Colombia may grow as much as 6 percent in 2011, the fastest pace since 2007, according to the central bank. Brazil’s central bank is forecasting growth of 3.5 percent this year, while the International Monetary Fund predicts South America as a whole will grow 4.9 percent.
