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Colombia to raise rates today

By how much is the question. Economy growing at a fastest rate since 1978. Reference to DG's prices up at Exito probably more an indication of inflation. However Peso still holding value against dollar (which is unexpected if inflation is running). Should be an interesting week for the Peso.

Colombia Central Bank Set to Raise Rates Highest in Five Years

By Helen Murphy

Feb. 23 (Bloomberg) -- Colombia's central bank will probably raise its benchmark lending rate as the country's fastest economic growth in almost three decades threatens to ignite a surge in inflation.

Policy makers will lift the overnight interbank rate by a quarter percentage point to 8 percent, the highest since March 2002, according to 22 of 26 economists surveyed by Bloomberg. The bank boosted rates six times in 2006 from a three-year low of 6 percent as it sought to cool growth this year -- forecast to be the fastest since 1978.

``High inflation has been expected for a while and the bank has been taking measures,'' said Bertrand Delgado, an economist at IdeaGlobal Inc. in New York, who expects the rate to be lifted to 8 percent. ``We will see some more increases in the coming months.''

Growth is accelerating in Latin America's fourth- largest economy in part because of President Alvaro Uribe's success curbing disorder after more than four decades of drug-funded rebel and paramilitary violence.

Industrial output surged 17.1 percent in November from a year-ago, just off a record high in October, while retail sales jumped 18.1 percent in November from a year earlier. In September retail sales rose a record 19.2 percent.

Consumer prices rose 4.5 percent in 2006, at the high end of the central bank's range of 3.5 percent to 4.5 percent as improved security encourages Colombians to buy new homes spend and spend more on durable goods such as cars and appliances.

Board Debate

``Inflation is likely to end the year in the higher end of the bank's target so it has to do something now to prevent that,'' Alvaro Camaro, head analyst at Stanford Financial Group's unit in Bogota, said in a telephone interview.

Juan Mario Laserna, a central bank board member, said Feb. 4 during a financial conference in Bogota that the monetary authority will continue to raise rates to control inflation and said he urged the board to add more than the quarter point agreed to last month.

Three analysts, including Stanford's Camaro, expect the central bank to raise rates by a half percentage point, while one analyst expects the rate to remain unchanged.

At their last meeting on Jan. 26, policy makers raised rates a quarter-point to 7.75 percent. The Central Bank will announce the rate decision this morning in Bogota.

To contact the reporters on this story: Helen Murphy in Bogota at hmurphy1 at bloomberg.net

Last Updated: February 23, 2007 06:23 EST

By Brians on Feb 23, 2007, 06:04 in Friendly Talkzone.

cali373 says on Feb 23, 2007, 07:16:

This story came out on bloomberg?

Smile if you are a thinker!

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cali373 says on Feb 23, 2007, 07:27:

Well The one thing that Colombians never have to worry about is wage inflation due to the high unemployment rate. It is also my understanding that Colombian businesses use the minimum wage as a benchmark to paying wages as oppossed to the market. I really think that the fact that Colombian wages are so low and red tape, inhibits growth. Both also contribute to the large informal economy of Colombia. New businesses are not easlily started due to the Red Tape and why would you kiss somebody's ass for the minimum when you can make the same amount of money in the informal economy.

What is Uribe, the so called business friendly politician doing about red tape. He was able to get the constitution amended to allow his re-election. Congress is full of his supporters. You are going to tell me he cannot do something about at elimating some red tape?

I am not sure but if I was to guess is that their are elites whose interests are being protected by red tape that hinders competition and that is why nothing is being done about red tape. But you guys will know more about this than me.

Smile if you are a thinker!

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Brians says on Feb 23, 2007, 07:30:

Bloomberg Yes and DG probably a little of both going on there at Exito. Anyway I would think the Peso would rise with the rate increase but what is puzzling is the fact that it has been running strong with inflation. This does not look good for your dollar theory or my wire transfer due next month that has cost me $5,000 because I waited for some weakness. Well at least I got 2/3 of my total wire done at 2,400 back in the fall.

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Brians says on Feb 23, 2007, 08:31:

DG I would agree with you that it is in Colombia's best interest to have a weaker currency just like the US wants against the Yen and Euro. The thing is that inflation is running high and all you need to do is look at 20 other stories of a bust when inflation gets out of control. Can't get it back in control once it starts moving. Argentina and Ecuador are prime examples. I did think that as US economy slowed we would see a weakness in commodity based economies. However we had a growth spurt Nov-Jan with Oil backing off. I do believe we will see the Peso weaken but not until the summer now and thus my little timing move for wiring money will cost me as I have to send money prior to the summer. Oh well. Longer term though if Colombia keeps inflation in control and keeps the headlines about guerilla activity down then Peso will continue to rise. That has and will be my thesis. Weakness on short term incidents such as bombs and economic news but the trend over the next 5 years will be higher. Risky for you as you live there but your money is in the US and me as I will be moving there in a couple years and only own my house there as an asset.

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spigrimace says on Feb 23, 2007, 09:59:

Without a doubt they are importing like crazy from China to Colombia. Every crappy thing like $1000 toys, little plastic empanada makers, wood palos for chuzos, they all say made in China.

Another thing Colombia is importing from China....Chinos! More and more are sprouting up here. The Chinese restaurants here are usually run by chinese and not Colombians. I guess they heard there were a lot of Yuans made in Colombia but found out when they came here there were just a lot of guys named Juan. ok I´m banned for a month to make any jokes on this forum.

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juanalejo says on Feb 23, 2007, 12:40:

Don Gringo Is it interesting that since your good old days as Gringo in bogota you have been forecasting the collapse of the Colombian economy and yet nothing. Many people have made money here investing here, not abroad just by an act of faith in our own country. Wouldn`t it be nice if once, just once you would actually have faith in anything Colombian? Anything...maybe women, maybe business people, maybe the housing market, maybe the plain worker, just anything that would hint that unconditional love you tend try and sell you have for Colombia that definitely does not trascend in any of your commentaries.

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juanalejo says on Feb 23, 2007, 13:10:

Don Gringo I don`t pay favors with favors, it is not in my way of being. I just say what I think. Any how I have not said the Colombian economy is better or worse that the USA or if it is going to be better or not, simply that since your Gringo in Bogota days you have been forecasting the collapse of the economy. Maybe it will, but then again if I sit in the desert and forecast rain for years on I may eventually hit it and it may rain.

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Brians says on Feb 23, 2007, 13:19:

I give DG some credit I disagree with a lot of his opinions but he definately admits when he was wrong and quite honestly I think that since he lives there I think his opinions are probably better based on Colombia than mine. I think when I debate him my opinions are based on my view of Colombia from a US viewpoint and his from being on the ground in Colombia. I think at any point someone can look wrong and then the next look correct. I try to listen to everyone. At least those that are not complete idiots.

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spigrimace says on Feb 23, 2007, 13:51:

Brians said: Longer term though if Colombia keeps inflation in control and keeps the headlines about guerilla activity down then Peso will continue to rise.

Amen bro. And doesn´t a country need to be super liquid for inflation? I don´t see everyone in Colombia with wheelbarrows full of cash. By raising interest rates, they are not loading up the peso printing presses and it seems that Bernake wants to save the US housing market and a possible economy stifling deflationary period so he isn´t raising rates thus leaving the dollar less attractive. And those US rates were sooo low for so long the US grew it´s M1 by how much in that Greenspan timespan of lowering rates?.....More than all previous timespans of lowering rates......combined! That smells of inflation.

And a good indicator of housing here in Colombia. They keep building, and the buildings keep filling. They built up Poblado & Envigado and now their starting my side of the river behind the 80 from the hills in Calsanz to Club Rodeo behind Campos de Paz. Cheap too. Almost all in teh 50-100 millones range where the high end gets you granite counter tops and some woodwork. Lots of people in those pueblos willing to come to the big city for work.

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