By Nelson Bocanegra and Carlos Vargas
BOGOTA, March 31 (Reuters) – Colombia Finance Minister German Avila, who represents the government on the country’s central bank board, said on Tuesday the government has withdrawn from the board until policymakers understand the need for coherence between their decisions and the economic reality of Colombia.
Avila held his own press conference after leaving the board’s monthly meeting, instead of attending the normally-scheduled event with the head of the board.
He said the proposal by four members of the board, a majority, to raise the rate by 100 basis points, was “disproportionate” and would lead to an uptick in inflation, adding that the board is too concerned with the needs of the financial sector and not of average Colombians.
“The ministry has made the decision to withdraw from the board meeting being held today by the central bank and to clearly establish a significant distance between the government and the central bank. This decision will only be reconsidered to the extent that the central bank understands that there must be coherence with the country’s economic reality and the country’s social reality,” Avila said at his ministry’s headquarters.
Avila and his boss, President Gustavo Petro, have for years protested efforts by policymakers to hold and raise the interest rate, arguing rate cuts would better serve the economy. Policymakers, including board chief Leonardo Villar, have rejected the political pressure, saying the board must be allowed to act independently.
Analysts had predicted the board would raise its benchmark interest rate for the second consecutive time in a bid to curb inflation amid local pressure on consumer prices and the conflict in the Middle East.
Locally, consumer prices have risen on the back of a 23% increase in the minimum wage, as well as higher government spending. An increase in the rate could also be meant to pre-empt the potential impact of the conflict in the Middle East on consumer fuel prices, analysts have said.
Colombia notched annual inflation of 5.29% for February, exceeding the bank’s long-term target of 3%.
In a recent Reuters poll, 14 of the 19 analysts surveyed predicted a 100 basis-point jump in the interest rate to 11.25%; four projected a 75 basis-point rise to 11% and one estimated a 150 basis-point surge to 11.75%.
(Reporting by Nelson Bocanegra and Carlos Vargas in Bogota, Writing by Julia Symmes Cobb, Editing by Matthew Lewis and Deepa Babington)
