The Central Bank of Colombia has announced plans to incrementally expand its international reserves by up to $1.5 billion starting in January. This decision comes as a move to prepare for potential reductions in Colombia's credit line with the International Monetary Fund (IMF) amidst global economic uncertainties.

The central bank of Columbia unveiled this initiative on Tuesday, shortly after its seven-member board implemented the first interest rate reduction in over three years, setting the borrowing costs at 13 per cent. The primary objective behind augmenting reserves is to ensure adequate external liquidity and readiness for a potential diminishing of Colombia's Flexible Line of Credit with the IMF, especially given the prevailing global economic volatility.

Notably, Colombia secured a two-year IMF credit line amounting to approximately $9.8 billion in April 2022. To accumulate these additional reserves, the central bank intends to utilise auctions of put options, allotting a monthly ceiling of $200 million. The inaugural auction is slated for January 2, with option exercises permissible between January 3 and 31, provided the exchange rate remains below its 20-day average.

This reserve augmentation strategy aims neither to influence the exchange rate nor to alter the existing monetary policy stance, as clarified by the central bank's statement. As of the end of November, Colombia's international reserves stood at approximately $58.6 billion, according to official data from the central bank.

(With Reuters inputs)