Colombia’s central bank on Monday said it cut its key overnight interest rate 50 basis points to 3.5 percent, citing a reduction in trade with Venezuela and low economic activity through September.
Colombian inflation is running well under target and the government reported last week that industrial production fell a sharper-than-expected 3.8 percent in September, raising speculation that the bank would cut rates on Monday.
The Colombian government expects an economic recovery in the fourth quarter that will pull the country out of recession by the end of the year.
But the numbers have continued to be grim. September retail sales slid 7.3 percent from a year earlier.
“The rate cut seeks to help the economy recover and counter the negative effects of the reduction in trade with Venezuela,” bank chief Jose Dario Uribe told reporters after the decision was announced.
Venezuelan President Hugo Chavez has stopped imports of some Colombian goods in protest of a military cooperation pact signed between Bogota and Washington last month.
Leftist firebrand Chavez says the pact could set the stage for a U.S. invasion of oil rich Venezuela, a claim dismissed by Colombia and the United States.
The rate-cutting cycle has slowed throughout Latin America after months of central banks moving to loosen credit in a bid to stave off the effects of the global financial crisis.
Chile, a relatively advanced economy which often moves in lockstep with the U.S. Federal Reserve, has paused with its key rate at 0.5 percent. Brazil’s central bank in October held its key Selic rate steady for the second straight meeting at an all-time low of 8.75 percent.
Colombia’s central bank has cut its key overnight rate by a total of 6.5 percentage points since the monetary policy loosening cycle began in December.
The government expects gross domestic product to grow 0.5 percent this year and 2.5 percent in 2010.
Colombian exporters, hit by the weakening dollar, have been clamoring for continued rate cuts, hoping that they will help slow foreign portfolio investment flows and reduce upward pressure on the peso.
The local currency has climbed 16.3 percent against the greenback over the last 12 months, hurting profits for Colombian farmers and manufacturers who get paid in dollars for their international sales. (Reuters)