Colombia holds rate, sees better growth but risks rise

    Colombia's central bank held its benchmark interest rate steady at 3.25 percent, as expected, saying economic growth is expected to improve during the year due to earlier rate cuts and government spending though the downside risks have recently risen.
    The Central Bank of Colombia, which has held rates steady since April after cutting them by 200 basis points since July 2012, also said it was possible that the recent devaluation of emerging market currencies, including Colombia's peso, would continue "and contribute to a better performance of the tradeable sectors of the economy, and hence, to a more balanced growth."
    The central bank did not make any comments about its foreign exchange intervention program that is set to expire at the end of September.
    Trade data suggest that domestic demand and economic growth in the second quarter will exceed the first quarter, the central bank said, adding that household consumption and investment in civil works and buildings probably grew at a slightly higher rate.  Growth in the mining, agriculture and trade sectors would also accelerate while industry would shrink again, though less pronounced.

    Colombia's Gross Domestic Product expanded by only 0.3 percent in the first quarter from the fourth for annual growth of 2.8 percent, slightly below 3.1 percent in the fourth quarter but the same as in the third quarter.
    Colombia's economic growth has been decelerating since hitting a 7.5 percent rate in the third quarter of 2011 and the central bank said its staff maintained its growth forecast for the second quarter in a range of 2.5 to 4.0 percent, with 3.4 percent the most likely outcome.
    For the full year, growth of 4.0 percent is seen as the most likely, the same as in 2012 but sharply down from 2011's 6.6 percent growth.
    Growth in advanced economies in the second quarter was slightly better than expected, the bank said, though growth in many emerging economies in Asia and Latin America was below expectations and the overall growth of Colombia's trading partners will probably be less than last year.
    Although the inflation rate rose to 2.22 percent in July, up from June's 2.16 percent, and the highest rate this year, the central bank said it was lower than forecast and average basic inflation was relatively stable at 2.5 percent.
    The average expectations of analysts and those based on market prices revolve around the central bank's inflation target of 3.0 percent.
    Last year the central bank embarked on a program to intervene in foreign exchange markets to keep the peso from rising and making Colombia's exports less internationally competitive. The intervention program was renewed in May, calling for the central bank to purchase at least $30 million a day through September.
    The peso weakened against the U.S. dollar from the beginning of the year, hitting a low of just under 1,950 by late June. It then rose until early this month and started weakening again. For the year, the peso is down around 8 percent against the U.S. dollar, trading at 1,932 earlier today.

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