BOGOTA, March 11 (Reuters) - A jump in Colombia’s inflation, sparked by a nearly 30 percent weakening in the peso currency is temporary and not a reason for the central bank to raise the benchmark interest rate, one of its board members, Juan Pablo Zarate, said on Wednesday.
Inflation rose to 4.36 percent over the 12 months through February, above the central bank’s target range of 2-4 percent which sets 3 percent as the ideal level.
“After the first half of the year inflation will start to converge again on the goal of 3 percent,” Zarate said on Wednesday. “It’s a transitory change and what we should do for the good of the economy is maintain stable monetary policy.”
The Colombian peso has fallen 28 percent in last 12 months versus the dollar, one of the sharpest currency weakenings in the region. The peso currently stands at 2,646 to the dollar, its weakest level since July 2004.
Analysts say the peso’s weakening will deepen the current account deficit, as Colombia shells out more pesos for dollar-traded imports. The central bank predicts a deficit equivalent to 5 percent of GDP for 2015, up from 3.4 percent the year before.
The ANIF association of Colombia’s financial institutions said in a report on Wednesday it could not rule out eventually cutting its growth forecast to 3-3.5 percent, from 3.8 percent.
It said faster inflation would eventually force the central bank to raise interest rates, instead of cutting them to privilege growth, as ANIF had initially expected.
Finance Minister Mauricio Cardenas said on Wednesday the weaker currency would be a boon for the consumption of domestic production and local tourism as imports and foreign travel become more expensive.
Reporting by Nelson Bocanegra; Additional reporting by Carlos Vargas; Writing by Julia Symmes Cobb; Editing by Peter Murphy and W Simon