Central Bank keeps rate unchanged

Colombia’s central bank decided to keep its key interest rate at
4.5% on Friday, a decision that had been widely expected by the market.

Central bank chief Jose Dario Uribe said in a statement read after
the monetary meeting of bank’s board that previous rate cuts will help
economic recovery by encouraging banks to lend more at lower rates. He
said that the rates charged by commercial banks already have fallen and
overall lending has risen over the past few months.

Last month, the central bank’s board had said it would likely keep
its rate unchanged in July after cutting it by 5.5 percentage points
since December 2008. At its June monetary meeting, the bank had cut the
rate by 0.5 percentage point to 4.5% from 5%.

The rate has not been this low since the bank began using interest
rates as its main tool to control inflation in February 1998.

The seven-member board was split on the Friday decision. A majority
voted to keep the rate unchanged, while a minority voted to cut rates
further, Uribe said. He didn’t provide further guidance on what the
board will decide in the future.

Uribe said that inflationary pressures have eased despite lower
rates. The 12-month inflation rate, which stood at 3.81% in June, is at
its lowest level in more than 40 years. Uribe said that inflation
is likely to end the year below the bank’s target range of between 4.5%
and 5.5%.

The bank’s board also discussed the recent strengthening of the
peso, Uribe said. The appreciation of the peso may harm the country’s
exporters, he said. The bank, however, didn’t decide on any action to
curb the peso’s rise.

Between 2006 and 2008, the central bank had raised the rate to tame
rising inflation, but in December it made a U-turn and started cutting
the rate as concerns shifted from inflation to a slumping economy.

The key interest rate applies to repurchase agreements, through
which the monetary authority provides liquidity to the financial
system.

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