CARTAGENA, Oct 8 (Reuters) - Colombia’s benchmark interest rate is approaching a neutral level and there is little reason to alter it, central bank board member Carlos Gustavo Cano said on Wednesday, adding there is room to cut the rate again if necessary.
The board held the rate steady at 4.5 percent for a second month in September, leaving behind a period of monetary tightening to ward off inflationary pressure that followed strong economic growth in the first quarter.
”To make an additional adjustment in the short term would be imprudent. I don’t see reasons for that,“ Cano told reporters at a business conference in Cartagena. ”There’re no reasons to think differently from maintaining the rate at its current 4.5 percent, hopefully for the longest time possible.
“In my personal opinion we’re now in the normalization zone of neutrality in the rate,” said Cano. “If it becomes necessary to return to an expansionary phase, we have room.”
He stressed that under current circumstances there are no reasons to cut the rate. A neutral interest rate is one that does not affect the economy, as it occurs when growth is at its potential and inflation is on target.
The bank began a tightening cycle in April, lifting the rate from 3.25 percent, where it had remained for 11 months to bolster the $370 billion economy.
Colombia’s economy expanded less than expected in the second quarter, slowing to 4.3 percent and shrinking compared with the first three months of the year. First quarter expansion was an unexpectedly fast 6.5 percent.
Gross domestic product will likely grow by 4.8 to 5 percent in 2014, Cano said.
Policymakers have expressed concern about Colombia’s revenue stream as crude output begins to decline and an economy-driving oil boom wanes. The government last week unveiled tax reform to bolster revenue.
Colombia has struggled to boost cash flow from the sector after a drop in global oil prices and debilitating attacks by Marxist rebels that have damaged pipelines and slowed transport.
The oil industry is the Andean nation’s biggest exporter and source of foreign exchange. It provides 20 percent of government revenue, from royalties and taxes, while attracting a hefty level of foreign investment.
“The real motor was not the energy sector, which has lost its dynamic,” Cano said of economic growth this year. “The substitute for it was spending, especially reflected in public works and housing.”
Cano said some economists see the price of oil dipping further and causing more ripples on the fiscal front.
The central bank’s mission remains to keep inflation controlled, Cano said, estimating consumer prices could end the year up 3 to 3.4 percent, or near the bank’s 3 percent goal.
The current exchange rate - 2,026.9 pesos per U.S. dollar - remains below equilibrium and so could weaken further, he said.
“I love that we are devaluing now, in my personal opinion it helps mitigate the growth of the current account deficit and strengthens industry and agriculture.” (Reporting by Carlos Vargas; Writing by Helen Murphy and Julia Symmes Cobb; Editing by Ken Wills)