Central Bank Chief Says Colombia May Reduce Stimulus Over a Year
(Bloomberg) -- Colombia’s process of normalizing monetary policy after a period of record low interest rates may take about 12 months, according to the governor of the central bank.
“In principle what we know is that we’ll go through a process that may take a year or so, taking the interest rate to a more normal level,” Villar told Bloomberg Television’s Shery Ahn in an interview on Monday.
Last month, Villar and his colleagues raised the key interest rate for the first time in five years, lifting it a quarter percentage point to 2% as the economy rebounds from last year’s slump. But the board split, with three of its seven members voting for a steeper increase after the recent spike in consumer prices. The bank will monitor inflation expectations, headline inflation, the strength of the recovery and the behavior of the jobs market in deciding its next moves, Villar said.
Annual inflation accelerated to 4.5% in September, the fastest pace since 2017. Villar said that much of this is caused by the rise in prices of commodities that Colombia imports, including food. Even so, the bank is worried about these rises spreading and causing a more general inflation, he added.
“Most of the pressures come from outside, but what we worry about now is that those pressures may affect the process of setting prices inside the country,” Villar said.
Colombia targets annual inflation of 3%, plus or minus one percentage point.
Brazil, Mexico, Peru and Chile have also raised interest rates in recent months as inflation exceeds targets across the region. When economies eased measures to curb the pandemic, pent-up demand pushed prices higher, while consumers were also hit by higher global food and energy costs.
Villar reiterated the bank’s forecast that the economy will grow 8.6% this year, far faster than its prediction at the start of the year. The economy is rebounding from last year’s crash, as well as from anti-government protests in the second quarter which hit supply chains by blocking ports and highways. The recent rise in energy prices tends to help growth in Colombia via its exports of oil and coal, Villar said.
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