Colombia’s central bank cut its
benchmark interest rate for a third month as policy makers seek
to spur lending and battle slumping economic growth.
Governor Jose Dario Uribe cut the interbank rate more than
expected to 8 percent from 9 percent. Only one of 35 economists
surveyed by Bloomberg forecast the move. The remainder projected
smaller cuts and one economist expected the bank to pause.
Policy makers are concerned the economy is slowing more than
anticipated. The central bank pushed up borrowing costs to a
seven-year high in 2008, keeping inflation in check but leading
to lower consumer lending, industrial output and retail sales.
“The new information available confirms the weakening of
productive activity in Colombia,” Uribe said after the decision.
“The most recent industrial production and retail reports
continue to show significant declines.”
Before cutting rates in December, the bank’s seven-member
board increased lending rates 16 times over two and a half years
to curb the fastest inflation in seven years. The bank said
today’s cut didn’t imply reductions of a similar size in the near
future.
Since President Alvaro Uribe took office in 2002, increased
bank lending fueled an expansion of consumer spending that helped
accelerate economic growth to 7.5 percent in 2007, the fastest
pace in almost three decades.
Now, the global credit crisis has begun to erode Colombia’s
growth, as exports to the U.S. and neighboring Venezuela slow.
The central bank cut its economic growth outlook on Feb. 12 to no
more than 3 percent from as much as 4 percent.
“The bank decided they need to go faster and more
aggressively in order for their decision to have a lasting
impact,” said Alberto Bernal, head of fixed-income research at
Bulltick Securities Inc, who correctly predicted today’s cut.
Industrial production fell 9.2 percent in December from a
year earlier. In November it fell 13 percent, the biggest drop
since June 1999, when an economic and banking crisis in Colombia
shuttered lenders and led the government to nationalize several
banks.
“The drop in inflation and inflation expectations confirm
the weakening in internal and external demand,” the bank’s
statement today said.
The peso’s 30 percent decline since July should slow the
pace of rate cuts as the bank seeks to bring inflation to within
its target range of 4.5 percent to 5.5 percent, said Ricardo
Duran, chief analyst at Corredores Asociados SA brokerage in
Bogota. “Its principal risk is missing its target for a third
year,” he said.
President Uribe added two new directors to the bank’s board
today. He named Juan Pablo Zarate, former deputy finance
minister, and Cesar Vallejo, former director at the National
Planning Department, to replace outgoing directors Juan Mario
Laserna and Leonardo Villar.
Some economists had been concerned Uribe, who has pressured
the bank over the past year to lower rates, would pick political
appointees that would damage the bank’s independence.
“My first impression is that the president chose economic
technicians which is the key issue, they understand the issues
surrounding monetary policy,” said Bernal. “This is good.” (Bloomberg)