Colombia Sees Increased Capital Flows, Tame Inflation

Colombia’s central bank foresees increased capital flows into the economy through early 2011 and expects inflation to remain within policy makers’ long-range targets, according to the minutes of its last monthly meeting.

The seven-member board analyzed economic growth and inflationary expectations through next year as well as the possibility that the global recovery may be slower than expected, the minutes of the Aug. 20 meeting showed.

“The board of directors believes the Colombian economy during the remainder of this year and in early 2011 will see favorable terms of trade, larger capital flows, low international interest rates and a weak recovery in external demand for the country’s non-traditional products,” the minutes posted on the bank’s website said.

Central bank chief Jose Dario Uribe told reporters after the meeting that it will buy dollars in the spot market to ease gains in the peso when appropriate. The board maintained the interbank rate at 3 percent.

President Juan Manuel Santos said ahead of the meeting he would try to persuade the board to be “more creative, more bold” in stemming gains in the currency.

Colombia’s peso has strengthened more than 13 percent this year, partly due to strong capital inflows, making the country’s exports more expensive in dollar terms.

‘Misaligned’ Peso

The central bank purchased $20 million a day between March 3 and June 30, or $1.6 billion in total, to curb a rally policy makers said left the peso “misaligned.”

The peso rose 0.3 percent to 1808.70 per dollar at 1:59 p.m. New York time. Its year-to-date gain is the best among 25 emerging market currencies tracked by Bloomberg.

The central bank right now “does not seem inclined to lean against the wind of currency appreciation,” Goldman Sachs Group Inc. economists Alberto Ramos and Paulo Leme said in an e-mailed report before the minutes were released.

Annual inflation was 2.24 percent in July as consumer prices fell 0.04 percent from the previous month. The government will release August inflation numbers tomorrow.

Finance Minister Juan Carlos Echeverry is seeking annual growth of more 6 percent within two years. He plans to boost spending on infrastructure, housing and agriculture, while creating as many as 2.4 million jobs. Colombia’s unemployment rate, at 13.3 percent, is the highest in Latin America.

‘Growing Faster’

“The information received during the last few weeks continues to indicate that the Colombian economy is growing faster than expected, without bringing inflationary pressure to bear,” the minutes said. “The increase in consumer and producer confidence, the momentum in a number of leading indicators and the soundness of the financial system confirm the build-up in the Colombian economy.”

Still, the International Monetary Fund predicts Colombia’s recovery from its first recession in a decade will lag most of its South American neighbors.

The IMF forecasts growth of 2.25 percent this year, slower than all other major regional economies except Venezuela, which is in recession.

Colombia will attract about $10 billion in foreign direct investment this year, the government has said, boosting the value of the peso.

–Editors: Robert Jameson, Harry Maurer

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