Colombia’s central bank unexpectedly lowered the lending rate on Monday, the last cut in its current cycle, as policymakers try to boost a still-sluggish economy even as inflation remains above target.
The seven-member board voted four-to-three to reduce the lending rate by 25 basis points to 4.50 percent, surprising the majority of analysts in a Reuters poll last week, who expected a hold.
Policymakers have cut 300 basis points from the rate since December 2016. Gross domestic product is expected to expand 2.7 percent in 2018, up from the 1.6 percent in 2017, the bank said.
Finance Minister Mauricio Cardenas, who represents the government on the board, said the 4.5 percent rate was “expansionist”.
Growth increases would come from accelerated external demand, previous rate cuts and investments in infrastructure projects, the board’s statement said.
Inflation fell less than expected in December, the board said, but it expects a reduction in the coming months as the effects of 2017 tax increases dissipate.
Policymakers reduced the current account deficit estimate for 2017 to 3.5 percent of GDP from 3.7 percent of GDP because of higher external revenues. It will fall to 3.3 percent of GDP in 2018, it said.
Colombia’s external revenue will keep improving if oil price increases continue, the board said.
Fifteen of 22 analysts polled in the Reuters survey expected the rate to remain at 4.75 percent, while seven anticipated the cut.
“The surprising increases in inflation in the last two months, added to upward-moving basic inflation, will become the arguments for restricting space for the bank to continue cuts,” said Gustavo Acero, from Ultraserfinco brokerage.
Inflation reached 4.09 percent in 2017, above the bank’s 2-4 percent target range for the third consecutive year.
Some analysts predict the cut will help growth, given predictions that inflation will fall to the mid-point of the target range this year.