Colombia’s central bank may cut its
benchmark interest rate for a third month as policy makers seek
to spur bank lending to consumers and manufacturers to jumpstart
a slumping economy.
Central bank Governor Jose Dario Uribe will reduce the
interbank rate to 8.5 percent from 9 percent, according to 22 of
29 economists surveyed by Bloomberg. Six analysts forecast cuts
ranging from a quarter-point to a full point, with one economist
expecting the bank to pause.
Policy makers last month lowered lending rates for the
second time in three years on concern the economy is slowing more
than the central bank anticipated. By pushing up borrowing costs
to a seven-year high in 2008, the bank checked inflation at the
cost of paring consumer lending, which led to a slide in
industrial output and retail sales.
“Economic indicators have deteriorated far more than the
bank expected so there needs to be a rate cut to help with
that,” said Alexander Cardenas, chief analyst at Acciones y
Valores, a Bogota-based brokerage.
Before December’s cut, 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.
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.
At today’s meeting the bank will strive for a balance
between the need to stimulate growth and concern that a weakening
peso may fuel inflation.
Finance Minister Oscar Ivan Zuluaga said on Feb. 24 that
he’ll ask the board to address the issue of a weaker peso today.
The peso’s 30 percent decline since July may 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, says Ricardo Duran,
chief analyst at Corredores Asociados SA brokerage in Bogota.
“The bank must be very cautious about devaluation,” said
Duran. “Its principal risk is missing its target for a third
year, so the weakening peso will prompt the board to pause.”
The bank has said consistently that tackling inflation is
its overriding priority.
Duran said the board may decide to sell dollars in a bid to
slow the peso’s deprecation.
“It has not hesitated in adopting foreign exchange measures
in conjunction with monetary policy actions in the past,” said
Jimena Zuniga, Latin America economist at Barclays Capital in New
York, who expects a 50 basis point cut today.
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 from
as much as 4 percent to no more than 3 percent.
Still, the bank’s Uribe has said he expects the economy to
end the year in the top half of its forecast range of 1 percent
to 3 percent.
“The reduction in growth has been much more significant
than I was expecting,” said Alberto Bernal, head of fixed-income
research at Bulltick Securities Inc, who predicts the bank will
cut to 8 percent. “They are going to need to front load the
easing cycle in the first half.”
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. (Bloomberg)