Colombia's inflation rate will likely end next year at between 3 and 3.5 percent and move closer to the central bank's target of 3 percent in 2017, board member Juan Pablo Zarate said. The central bank in July held the benchmark lending rate at 4.5 percent for the 11th straight month to help bolster economic growth, though the decision was divided as some of the seven policymakers sought an increase to tackle accelerating inflation.
"We have to accept that there are factors that mean our best estimates for inflation convergence have gone off track a bit," Zarate told Reuters, giving his own opinion and not that of the entire board. The bank's official inflation target range for this year is 2 percent to 4 percent, though it has acknowledged that it will likely blow out to between 4 percent and 5 percent.
A continued devaluation of the currency has slowed the decline in inflation toward 3 percent, the "most desired" midpoint of the target range. Inflation for the 12 months through July was 4.46 percent. A drop in global oil prices has helped push the peso down more than 50 percent against the US dollar in the past year. Prior to that, the central bank conducted a lengthy dollar purchasing plan to weaken a relatively strong currency.
Intervention in the currency market to contain the devaluation is "inadvisable" right now because inflation expectations are well anchored and the weakened peso is not creating financial instability, Zarate said. "While this is the case, intervention is inadvisable and that is why the board has not taken action." Zarate said international shocks remain the biggest risk for Colombia's economy.
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