Colombia’s central bank, Banco de la Republica, said it will buy U.S. dollars amid worries of inflation and an over-heating economy, in a press release Friday.
The bank said it would buy a minimum of $20 million a day in currency auctions for at least three consecutive months.The objective is to curb a rising peso, which hit a five month high February 3.
The bank’s task has been made more difficult by a robust economy. Colombia, with a third quarter GDP growth of 7.7%, was rated the third fastest-growing South American economy at the Second Investment Forum in Latin America and Asia Pacific.
In an attempt to cool the domestic economy Banco de la Republica raised interest rates last month. While this may slow domestic growth, it is likely to attract foreign capital from countries such as the US and EU, who have slashed interest rates due to faltering economies.
This, along with booming oil and mineral industries, make inflation even more likely.
Alejandro Arreaza and Alejandro Grisanti, analysts for Barclays Capital Inc. Latin America, wrote in a report Monday, “We expect inflation to accelerate in coming months, driven by higher food prices and the demand pressures that are likely to start to push up core inflation.”
