Colombia Central bank minutes show division on rates

The central bank has been hiking rates since February to ward off inflationary pressures and keep Latin America's No. 5 economy from overheating. It has come under pressure from the government to wrap up the tightening cycle.

Minutes from the bank's June policy meeting, in which it raised rates 25 basis points to 4.25 percent, said one board member thought an increase was not "convenient" citing inflation indicators within the bank's 2 to 4 percent target range and economic growth close to historic levels.

"This scenario justifies waiting to the next meeting of the board, in order to count with additional solid information on interest rates," the minutes said that the member considered.

It did not name any of the members or say how they voted.

A majority of the bank's seven-member board did, however, vote for the hike, breaking with a consensus stance between February and May, when it raised rates like other South American countries.

President Juan Manuel Santos has said the central bank should not undertake "exaggerated" interest rate hikes that could hurt the economy in the long term.

Other Latin American nations such as Brazil, Chile and Peru have been raising rates to fight inflation spurred by higher fuel and food costs after having cut them to fight fallout from the global economic crisis.

Colombia, Latin America's No. 4 oil producer, has recouped investment-grade credit ratings from three major ratings agencies so far this year and is attracting strong investment inflows in the mining and oil sectors.

The minutes showed that one board member said that the high concentration of foreign investment and exports in the energy and mining sectors coupled with their low generation of jobs was "an unmistakable symptom of Dutch disease".

That member agreed to the rate hike but indicated that it should be the "last movement", the minutes showed.

THOSE IN FAVOR, GROWTH AND INFLATION

Those in favor of the rate rise said the current real rate was below its "probable equilibrium" for the long term and was inconsistent with economic growth close to its potential in 2011 and 2012 and for inflation near the target's mid-point.

That group thought that 4.25 percent continued to be expansive, the minutes showed.

"It's very clear there is a divergence on the board about what should be the future of interest rates in coming months," said Patricia Gonzalez, an analyst at Banco de Bogota.

"In any case, it's not the majority position of the board, and other members see that demand is strong and it's necessary to adjust monetary policy to avoid overheating the economy."

Inflation in the 12 months to May was 3.02 percent, up from 2.84 percent in April, the government said, while a Reuters poll of analysts found that the 2011 median forecast was 3.22 percent, slightly higher than the last poll.

The minutes showed that inflation expectations for two and three years slowed down and were within the target range.

Colombia's central bank expects economic growth of 4 percent to 6 percent, and the government said economic growth accelerated in the first quarter. That could raise expectations of more rate hikes to ward off inflation.

"For the second quarter of 2011, the limited indicators available do not make it possible to consider a significant slowdown in growth," the minutes said.

"The possible transitory character of the performance of public works as well as the limited information available for the second quarter does not permit the consideration of any important change in the growth forecast for 2011."

COPYRIGHT REUTERS, 2011