Central Bank of Colombia Hikes Rate 25bps to 5.00%

The Central Bank of Colombia raised its monetary policy interest rate 25 basis points to 5.00% from 4.75%.  The Bank said [translated]: "The increased risk of central forecasts growth remains a disorderly adjustment in Europe. The risk materializes, the world economy would grow significantly less than expected, international prices of basic goods could fall and exacerbated global risk aversion, all of which adversely affect the Colombian economy. For its part, the main risk to inflation coming from excessive expansion in demand or increases in cost overruns, with strong and lasting effects on expectations and credibility of monetary policy. In a longer time horizon, excessive credit growth and the persistence of low real interest rates could be a source of financial imbalances have negative consequences on the sustainability of economic growth."

The Central Bank of Colombia last hiked the rate 25 basis points at its November meeting, while its previous change was an increase of the interest rate by 25 basis points to 4.50% at its July monetary policy meeting, following a 25bp increase in June last year.  Colombia reported annual inflation of 3.6% in December, 3.96% in November, 3.73% in September, 3.27% in August, 3.42% in July, 3.23% in June, 3.02% in May, and 2.84% in April; which compares to the Bank's inflation target of 3% (+/- 1%).

Colombia reported a spike in annual GDP growth to 7.7% in the September quarter of 2011, compared to 4.8% in the June quarter and 5.1% in the March quarter, while the bank previously said the 2011 full year forecast of 4.5% - 6.5% is highly probable.  The Colombian peso (COP) has gained about 3% against the US dollar over the past year, while the USDCOP exchange rate last traded around 1,817

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