Colombia’s bond yields fell Wednesday, after the country’s central bank lowered borrowing costs by a “surprising” half a percentage point.
Friday’s unexpected half a percentage point cut on benchmark interest rates followed four quarter-percentage point reductions since November.
A “significant reduction” in investment growth came in the second half of 2012, along with a slowdown in the rise of private consumption and a slowdown in the increase in exports. This resulted in “a major loss of momentum,” according to the bank.
The first quarter of 2013 showed a deterioration in trade expectations and a drop in consumer confidence, suggesting reduced momentum in private consumption. This, according to the bank, “denotes current economic growth below potential and, hence an increase of the shortcomings with respect to use of industrial productive capacity.”
The bank considered that Colombia’s trading partners are likely to grow less than expected, meaning that economic growth from external demand would remain low.
If trends continue in prices for major exports, terms of trade would average less in 2013 than last year, meaning there would be no additional boost from an increase in national revenue, according to the central bank.
The bank said that the previous interest rate cuts – 25 basis points a month over the last four months – have been passed on to interest rates on deposits and loans in the financial system. Real interest rates have not fallen to the same extent according to the bank, because of the drop in inflation and expectations.