Colombia’s central bank on Monday again cut interest rates after board members came to the conclusion that the economy was growing below its potential.
The central bank voted in favor of bringing interest rates down by 25 basis points to 4% from 4.25%, according to a statement released by the Ministry of Finance.
“The Colombian economy is growing below its potential, and inflation is falling below the 3% target,” said policy makers. “In these circumstances, the balance of risks makes reducing the interest rate a desirable move.”
Along with chopping the interest rate, central bankers decided to step up dollar purchases to no less than $30 million per day in order to balance out its increasing integration with the global economy.
In its decision, the central bank observed several worrisome signs, namely, weak global demand and suspect US economic growth expectations. An expansionary stance regarding monetary policy has threatened Colombia with a strong rise in the value of its currency.
At the World Economic Forum in Switzerland, Colombia’s finance minister Mauricio Cardenas told of the successes Colombia accrued in 2012, but he also pointed to a struggling industrial sector and bemoaned the administrative congestion in his country’s housing sector.
Despite all of this, Cardenas was confident about a strong year of growth for Colombia in 2013. Colombia’s annual growth forecast is pinned at 4.8%.
But according to the central bank’s forecast, growth numbers are more likely to fall between 2.5% and 4.5% in 2013. Uncertain expectations derive from the potentially negative effects of investment in civil works and building projects.
Cardenas has voiced strong opposition toward protectionist policies. He says that instruments like Brazil’s capital controls are not conducive to growth in the conditions that Colombia faces.
Policy makers assured that the central banks has the tools and resources to face foreign currency challenges and liquidity demands that may arise in the present condition of international financial turbulence.