Reuters: US Dollar Report: UPDATE 3-Colombia holds rate as risks ease, likely to stay on hold

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UPDATE 3-Colombia holds rate as risks ease, likely to stay on hold Oct 26th 2012, 23:24 Fri Oct 26, 2012 7:24pm EDT * Domestic demand to drive growth in coming quarters * Central bank says slowdown stabilizing in major emerging markets By Jack Kimball BOGOTA, Oct 26 (Reuters) - Colombia on Friday held its benchmark interest rate steady for the second straight month, as expected, and looked set to keep it on hold given lower global risks and robust growth at home. The majority decision by policymakers to keep the rate at 4.75 percent was based on strong domestic demand in Latin America's No. 4 economy, despite a likely slowdown in growth during the third quarter. Though the bank remains concerned about the global economy, it said prices are still high for key Colombian commodities exports like oil, supporting national income. "Despite signs of slowdown, expansion will continue in the coming quarters driven by domestic demand," the bank said in a statement following its decision. "A healthy financial system, the confidence of households and a dynamic labor market will continue to support growth in consumption," policymakers added. Analysts said the tone of the bank's statement suggested it would likely keep rates steady going forward. "The balance of arguments they put in catalog this statement as neutral. I'd say for now it seems that the bank may keep the rate at this level until the end of the year," said John Jairo Ramirez, an analyst at the Bolsa y Renta brokerage. The bank said inflation expectations remained near the midpoint of its 2-4 percent target range. It maintained its economic growth estimate for this year at between 3 percent and 5 percent, and said it would be similar next year. The monetary authority gave a nod to the weak global economy, especially in Europe and the United States, but said the slowdown in some major emerging market economies appeared to be "stabilizing". "The authorities remained in a wait-a-see mode as they see a reduction in the global risks, while they are optimistic on domestic growth and are cautious regarding the housing market," Barclays Capital said in a research note. In a Reuters survey on Monday, 16 of 22 economists expected the central bank to maintain the overnight lending rate for the second consecutive month. The remaining six analysts saw a 25 basis-point cut. In the region, major economies such as Mexico and Chile have held rates steady since early this year as they gauge fallout from the euro zone debt crisis. At the bank's September meeting, the majority of the seven-member board voted to hold borrowing costs steady while a minority wanted to cut the rate to protect the economy from the global slowdown. The central bank and the government have been buying dollars to prevent the strengthening of the peso currency, which has firmed 6.47 percent so far this year. Finance Minister Mauricio Cardenas said that the government had bought $641 million in the year to Oct. 18. Link this Share this Digg this Email Reprints

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