Colombia’s central bank unexpectedly
cut its benchmark interest rate by half a percentage point, the
first reduction in more than three years, in a bid to spur
consumer spending and temper an economic slowdown.
Policy makers reduced the interbank rate to 9.5 percent at a
meeting in Bogota today, surprising all but two of 34 analysts
surveyed by Bloomberg. Nineteen expected the bank to hold the
rate at 10 percent, while 13 expected a cut to 9.75 percent.
Colombian President Alvaro Uribe and Finance Minister Oscar
Ivan Zuluaga have called for lower lending rates, saying it would
help the economy cope with the worst global financial crisis
since the Great Depression. The seven-member board until now
resisted the demands, betting that a cut would stoke expectations
that inflation will accelerate.
“The confidence of families and companies has been affected
by internal and external factors, and so we expect to see lower
growth in internal demand,” bank President Jose Dario Uribe said
in the statement announcing the bank’s unanimous decision. He
said inflation will moderate next year.
In the past two meetings, some board members lobbied for a
reduction of as much as a half point on concern that economic
growth may slow further. Bank director Carlos Gustavo Cano said
in a Dec. 11 interview that he disagreed with the board’s
decision to raise rates this year.
“Recent economic data has been weak and there was plenty of
room for a cut so this is good news for the economy,” said
Rupert Stebbings, head of international sales at Interbolsa SA.
The central bank has said growth next year could decelerate
to as little as 1 percent, dragged down by the first simultaneous
recession since World War II in the U.S., Europe and Japan.
Industrial production fell 7.5 percent in October, more than the
3 percent forecast by 15 economists in a Bloomberg survey.
Gross domestic product expanded 3.7 percent in the second
quarter, the slowest pace since 2003, down from 8 percent in the
same period a year ago. Third-quarter GDP figures will be
released Dec. 22.
“The economy will shrink very fast next year, and that will
impact employment,” said Bertrand Delgado, an economist with New
York-based research firm IDEAglobal. “Inflation will continue to
decline as the economy decelerates rapidly.”
Before today’s decision, policy makers had made battling
inflation their top priority. Inflation this year reached a high
of 7.94 percent in October and eased to 7.73 percent last month,
above the central bank’s target range for this year of 3.5
percent to 4.5 percent.
Still, inflation expectations over the next 12 months fell
to 5.36 percent in the central bank’s December survey of
economists, from 5.84 percent last month. The bank targets
inflation of no more than 5.5 percent next year.
Bank President Uribe said today that problems with
Colombia’s principal trading partners and the decline in prices
for its exports will help reduce inflation next year.
Some analysts say it was too soon to cut rates.
“Inflation remains high and hasn’t peaked yet,” said
Benito Berber, a strategist at RBS Greenwich Capital Markets Inc.
in Greenwich, Connecticut.