Morgan Stanley warned Tuesday that Colombia’s surprise interest rate cut could lead to problems with inflation later in the year, Bloomberg reports.
“The central bank’s decision to cut rates may be a signal that the authorities are focusing more on fighting currency appreciation and may have to pay the inflation costs of such a policy shift,” said Morgan Stanley analyst Daniel Volberg.
Colombia’s Central Bank dropped the interest rate from 3.5% to a new record low base rate of 3% on Friday, surprising many onlookers.
The bank decided to make the cut on the ground that inflation levels appear to be low and stable. Consumer inflation fell 25 points on February’s figures, a significantly better result than was expected by the Banco de Republica.
The new projections made by the bank’s board are that inflation will end the year around 3%, squarely within the 2-4% target range.
Information received in recent weeks suggests that the economy is recovering faster than expected, without generating inflationary pressures.
