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Colombia finmin expects slower 2012 growth, wants rate cut

by on July 25, 2012 2:32 am GMT
 

BOGOTA, July 24 |
Tue Jul 24, 2012 10:32pm EDT

(Reuters) – Colombian Finance Minister Juan
Carlos Echeverry said on Tuesday that the Andean country would
grow more slowly than expected in 2012 at 4.5 percent versus 4.8
percent previously, hit by falling growth in agriculture and
industry.

Latin America’s No. 4 economy expanded at a brisk 5.9
percent last year but growth in 2012 is expected to take a hit
from the global economic slowdown, a year-long series of rate
hikes in Colombia, and poor performance in the second quarter.

“We can’t be complacent. We need measures that help the
economy in precisely the next six or 12 months. Sectors where
such measures must be more effective are agriculture and
industry. I see the other sectors growing well,” he said.

“That’s why the government has the feeling that a more
competitive exchange rate (and) an interest rate that at some
moment could begin to go down could help the economy a lot, in
particular agriculture and industry,” he told journalists.

Colombia’s economic growth rate likely slowed in the second
quarter to between 4.3 percent and 4.5 percent versus 4.7
percent in the first quarter, said Echeverry, who is also a
member of the central bank’s board of directors.

The monetary authority – which is meeting on Friday to
decide on the benchmark interest rate – is also expected to
lower its 2012 economic growth estimate, most likely tightening
the current 4 percent to 6 percent range.

A Reuters poll of analysts on Tuesday showed that 31 out of
40 believed the bank’s board would keep the rate at 5.25 percent
for the fifth consecutive month since credit growth remained
high and economic data were somewhat mixed.

Nine analysts saw the rate being cut by 25 basis points.

The majority of experts believed the bank would not raise
the amount of daily dollar purchases from the current $20
million or more.

Colombia has been battling against the impact of a
strengthening peso, which has damaged export competitiveness.

The country has attracted record foreign investment in the
past decade as a military offensive against rebels made it safer
to do business.

The influx of dollars, coupled with attractive yields
compared with near-zero interest rates in developed economies,
has bolstered the value of the peso 8 percent so far this year.

Exporters such as flower and coffee growers have suffered
from a strong currency because they pay costs in pesos but
receive dollars for their sales.

Echeverry reiterated a government call that the bank could
buy more reserves to put pressure on the peso, which has become
the world’s strongest gaining currency.

“Reserves should be around $50 billion. Today they are $34
billion so there is space to buy and increase reserves,” he said
citing the findings of a technical document by the finance
ministry.