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Colombia should consider more expansive monetary policy - IMF

Nelson Bocanegra
·2 min read

By Nelson Bocanegra

BOGOTA, Feb 12 (Reuters) - Colombia should consider a moreexpansive monetary policy to help the economy recover from thefallout of the coronavirus pandemic, the International MonetaryFund (IMF) said on Friday.

The IMF this week revised its projection for Colombia'seconomic growth upward to 4.5% for this year, from 4%previously.

It also estimated economic contraction last year will havereached 7.9%, down from a previous prediction of 8.2%.

The economy has been battered by quarantine measures meantto control the spread of the coronavirus. The central bank boardreduced the benchmark interest rate by a total of 250 basispoints between March and September last year, leaving it at ahistoric low of 1.75%.

"Given central bank credibility and available policy space,further monetary policy easing should be considered if subduedinflation remains well below target or downside risks to growthmaterialize," the IMF said in its concluding statement after anofficial staff visit to the country.

Short-term policy should focus on defeating the pandemic andconsolidating recovery, it added.

"At the same time, reforms should be passed to secure soundpublic finances over the medium term. Tackling long-standingstructural challenges to raise inclusive growth and externalcompetitiveness remain crucial," the IMF said in the statement.

"We would be in favor of a gradual tax reform, given theuncertainties," Hamid Faruqee, head of the IMF's Colombiamission, said in a virtual news conference.

Returning to the deficit limit in 2022 would require aforceful adjustment which could derail recovery, the IMF added.Colombia suspended its usual fiscal deficit limits last June tofree itself to meet the fiscal needs created by the pandemic.

The government widened its fiscal deficit target for lastyear to 8.9% of GDP and to 7.6% of GDP for 2021.(Reporting by Nelson BocanegraWriting by Julia Symmes CobbEditing by Jonathan Oatis)