Colombia holds rate steady, to continue to buy FX

    Colombia's central bank held its benchmark interest rate steady at 3.25 percent, as expected, and will continue to buy foreign exchange worth at least $2.5 billion from June to September to keep the peso from rising.
    The Central Bank of Colombia said the peso, like other currencies in Latin America, has depreciated against the U.S. dollar, either due to lower international prices of basic goods or because investors are speculating that the U.S. Federal Reserve will be being to reduce its asset purchase program.
    "The interventions of the Central Bank in the local exchange market, as well as measures taken by the government, have reinforced the trend towards depreciation of the peso," the central bank said.
    In January Colombia's central bank said it would spend at least of $3 billion between February and May, with daily purchases of not less than $30 million, to buy foreign exchange to hold down the peso.
    The peso has eased some 7 percent against the U.S. dollar this year and continued to drop after news the central bank would continue to intervene, helping reverse a 10 percent rise in 2012.
    The central bank said second quarter economic growth should improve from the first quarter - estimated at less than 3.0 percent - with consumer confidence improving significantly as previous rate cuts are being transmitted to lower nominal interest rates which has stopped the fall in credit.

    Colombia's central bank has held rates steady since March after cutting the benchmark rate by 200 basis points since July 2012.
    Economic growth is expected to rise throughout this year as spending continues to react to earlier rate cuts and the government's $2.7 billion stimulus program from last month.
    Exports, however, are expected to rise slower than previously estimated due to slower growth in emerging markets, the central bank said.
    The central bank's staff has kept its 2013 growth forecast at 3.0-5.0 percent, with 4.3 percent growth the most likely outcome. In 2012 Colombia's economy grew by 4.0 percent, down from 2011's 6.6 percent.
    The latest official data show that Colombia's Gross Domestic Product expanded by 1.8 percent in fourth quarter, sharply up from the third quarter's 0.7 percent contraction, for annual growth of 3.1 percent, up from 2.7 percent.
    Inflation in Colombia rose slightly to 2.02 percent in April from 1.91 percent but the central bank said core inflation showed no significant change and both measures were below the central bank's 3.0 percent target. It is highly likely that inflation will remain around the target range of 2-4 percent.
   The bank said the probability was hight that inflation would remain in the target range.

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