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Colombia Holds Key Rate at 4.25% as Recovery Needs Support

Colombia Holds Key Rate at 4.25% as Economy Still Needs Stimulus

(Bloomberg) -- Colombia left its benchmark interest rate unchanged as policy makers remain wary of derailing the weak, jobless recovery by raising borrowing costs too soon.

The seven-member board voted unanimously to leave the policy rate unchanged at 4.25 percent for a twelfth straight month, bank Governor Juan Jose Echavarria said Friday after the meeting. The decision was forecast by all 24 analysts surveyed by Bloomberg.

“What I see is similar to the market’s view of stable rates,” Echavarria told reporters after the meeting. “We’ll see for how long, but there’s no pressure to raise rates.”

Growth is gradually picking up, led by construction, but the economy continues to operate below its full capacity and the jobless rate is at a six-year high. Economists surveyed by the bank have repeatedly pushed back their forecasts for rate increases, and now expect just one hike this year, in October, according to the most recent survey.

“While the economy is recovering, there are doubts about the speed at which is doing it,” said Munir Jalil, economist at BTG Pactual’s Colombia unit, speaking in a interview before the decision.

Colombia’s economy will grow 3.2 percent in 2019 according to analysts surveyed by Bloomberg, more than Brazil, Mexico and Argentina but behind Chile and Peru. The bank estimates that the economy can grow 3.3 percent a year without stoking inflation.

The national unemployment rate rose to 11.8 percent in February, the highest rate for the month since 2013. The bank is analyzing whether an influx of migrants from Venezuela explains some of the increase.

Annual inflation accelerated to 3.2 percent in March, after protesters blocked a key highway, causing some food prices to rise. Colombia targets inflation of 3 percent, plus or minus one percentage point.

To contact the reporter on this story: Oscar Medina in Bogota at omedinacruz@bloomberg.net

To contact the editor responsible for this story: Matthew Bristow at mbristow5@bloomberg.net

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