Colombia’s central bank may start cutting interest rates as soon as
this month as the economy slows and as inflation is expected to ease in
2009, Finance Minister Oscar Zuluaga said on Tuesday.
Zuluaga also serves on the bank’s monetary policy board, where most
members have resisted calls from President Alvaro Uribe to cut the
country’s key overnight rate from its current 10 percent.
“Hopefully we can reduce the rate starting with the bank’s next
policy meeting,” Zuluaga told local radio. The upcoming meeting is
scheduled for Nov. 21.
Inflation is running way above Colombia’s 2008 target ceiling,
with prices rising a higher-than-expected 0.35 percent last month to
bring 12-month inflation through October to 7.94 percent.
Consumer prices are expected to ease back toward the 4.5
percent goal next year as the economy feels the weight of the world
economic crisis.
“Given the recent high inflation numbers, I would say it is a
bit premature to predict a rate cut on the 21st,” said Boris Segura,
who analyzes Colombia for Morgan Stanley in New York.
“To cut this early would be risky for the central bank’s credibility,” Segura said.
President Uribe, who is weighing a possible run for a third
term in 2010, wants lower rates to ensure a soft landing after last
year’s 7.5 percent economic boom and expected growth of 3 percent to 4
percent this year.
Lower rates would prompt consumers to spend and businesses to
hire, helping ensure Uribe’s continued high popularity. His allies in
Congress are trying to change the constitution to allow him a third
campaign.
The central bank expects gross domestic product to expand by as
little as 1 percent in 2009 as credit problems that started with the
U.S. sub-prime mortgage mess spread financial gloom around the world.
Aside from an expected reduction in foreign investment, job
creation and domestic consumption next year, Latin America is
particularly vulnerable to sliding prices for oil, grains, metals and
other commodities produced in the region. (Dow Jones)