Colombia’s central bank lowered its
benchmark rate by a full percentage point as it seeks to revive
growth in South America’s fourth-biggest economy.
Policy makers led by bank chief Jose Dario Uribe voted
unanimously to cut the overnight rate to 7 percent, the lowest
since 2006. The move matched 19 of 33 forecasts in a Bloomberg
survey of economists; the others expected smaller reductions.
Latin America’s fifth-biggest economy may have expanded at
the slowest pace in almost seven years in the fourth quarter of
2008, according to economists surveyed by Bloomberg, while
annual inflation has slowed for four consecutive months after
reaching the fastest pace since 2002.
“We have maintained all along that rate cuts would be
frontloaded to achieve as much stimulus as possible,” said
Boris Segura, an economist at Morgan Stanley in New York. “This
confirms our call.”
After half-point cuts in December and January, the board
last month slashed the overnight rate by a full point, the
biggest reduction in almost seven years.
Uribe has said the time is right to lower rates. Industrial
production has declined for six straight months while retail
sales have fallen for five months, prompting the central bank to
say economic growth in 2009 could slow to 1 percent to 2
percent, down from its original 5 percent estimate.
“The main concern now is how to push the economy because
inflation expectations are under control,” Finance Minister
Oscar Ivan Zuluaga said yesterday in an interview. “The
external signs of the world economy and the local signs of
economic growth are very low.”
Since President Alvaro Uribe took office in 2002, increased
bank lending has fueled an expansion of consumer spending that
helped accelerate economic growth to 7.5 percent in 2007, the
fastest pace in almost three decades.
The bank pushed up borrowing costs to a seven-year high of
10 percent in 2008, which helped check inflation. Now, the
global credit crisis has begun to stifle Colombia’s growth, as
exports to the U.S. and neighboring Venezuela slow.
Zuluaga said the economy will expand this year. Still, in
April the government will probably revise its estimate for 3
percent gross domestic product growth after analyzing data that
come out next week, he said.
The April revision of gross domestic product likely will be
the final change in growth numbers, Zuluaga said.
Colombia’s central bank last cut rates at four straight
meetings in 2002, when policy makers sought to avert a recession
and cut a double-digit unemployment rate.
“The central bank will cut rates further during 2009
irrespective of the shape of the world or domestic economy and
the level of risk aversion,” said Alberto Bernal, head of
fixed-income research at Bulltick Securities Inc., who expects
the bank to cut the rate to 5.5 percent by year-end.
Output fell 10.7 percent in January while retail sales
tumbled 4.5 percent, the biggest decline since the National
Statistics Office began the series in January 2000.
Consumer price increases slowed to an annual rate of 6.5 in
February, down from a peak of 7.9 percent in October. The
central bank is targeting an annual inflation rate of 4.5
percent to 5.5 percent this year. (Bloomberg)