Colombia has room for monetary easing: IMF
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Emerging Markets

Colombia has room for monetary easing: IMF

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Experts from the IMF praised Colombia’s resilience and said the country has room to lower interest rates in the event of a downturn

Colombia’s economic growth is expected to have moderated below its potential rate of 4.5% last year because of the “lagged impact of countercyclical policies, supply shocks and weaker external demand,” the IMF said in its conclusions after Article IV consultations.

Colombia has a Flexible Credit Line (FCL) agreement with the International Monetary Fund under which it would only resort to drawing the money if it absolutely had to.

This year, the IMF sees the country’s growth at 4.4%, around its estimated potential rate, while inflation is forecast at 3%, close to the central bank’s target.

The current account deficit is expected to remain at 3% of gross domestic product, as “spillovers from the global turmoil have been limited so far,” the IMF said in a statement.

“However, Colombia remains vulnerable to a sharp growth slowdown in trading partners, a steep drop in oil prices, or a sharp rise in global risk aversion,” it added.

The IMF directors said that the policy stance for 2013, which is broadly neutral, was appropriate and the budget was in line with medium-term fiscal consolidation plans.


“In the context of a flexible exchange rate regime, there is room for further monetary easing if downside risks materialize. A comfortable level of international reserves, reinforced by the FCL arrangement, and low ratios of external and public debt provide additional buffers,” the IMF directors said. Plans for tax and pension reform were commended by the IMF directors, who encouraged authorities to consider fiscal consolidation plans that focus on increasing non-commodity revenues, which “could help mitigate the appreciation pressures, build buffers against adverse commodity price shocks, and create fiscal space for improving public infrastructure.”

The IMF directors said Colombia’s banking system appeared sound and resilient to “a wide range of shocks” and was effectively supervised.

But they noted that concentration risks remained “a source of fragility” and urged authorities to improve the risk-based approach to supervision in line with Basel II rules, promote independence and legal protection of supervisors and strengthen the financial safety net.

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