BOGOTA, March 13 (Reuters) - Colombia’s central bank could begin raising its key interest rate toward a neutral level as temporary supply shocks disappear and gradually allow inflation to rise, the International Monetary Fund said on Thursday.
The central bank has held its key lending rate at 3.25 percent - the lowest level since January 2011 - for the last 11 months in a bid to stimulate spending and provide a boost to economic growth that would lift inflation toward the mid-point of the bank’s target range of 2 to 4 percent.
The IMF - on a regular visit to Colombia to go over its financial books - said temporary supply shocks last year reduced food and energy costs and “subdued” consumer prices. Inflation ended last year at a 1.9 percent rate.
“As inflation gradually rises toward the 3 percent mid-point of the target range as one-off factors disappear, the mission considers that the policy interest rate could be increased toward its neutral level,” the IMF’s Valerie Cerra told reporters in Bogota.
The central bank, which meets on March 21 to decide monetary policy, will analyze gross domestic product data set for release next week before voting on whether to alter borrowing costs.
Finance Minister Mauricio Cardenas told Reuters on Monday that he saw no reason to change the benchmark interest rate as long as economic growth remains below its rising potential and inflation is low. He said the potential growth rate was heading higher than the current 4.6 percent.
The economy has grown steadily following central bank rate cuts of 200 basis points between July 2012 and March 2013. The statistics agency will report fourth-quarter and full-year 2013 economic growth data on March 20.
“Economic growth accelerated during 2013 with the support of monetary policy and fiscal measures that stimulated activity in the construction sector and public works, bringing annual GDP growth that’s estimated at close to 4 percent,” Cerra said.
“Economic prospects for 2014 are favorable, with growth expected at about 4.3 percent and inflation within the target range,” she said.
The government has said GDP expansion was above 4 percent last year and likely to reach 4.7 percent in 2014.
The potential growth rate, or the economy’s capacity to boost output sustainably, is increasing as strong investment levels swell the nation’s output capacity, Cardenas said. (Reporting by Helen Murphy, Nelson Bocanegra and Carlos Vargas; Editing by Ken Wills)