Colombia’s low rate of inflation prompted predictions that the country will continue slashing interest rates, maybe even to the lowest in all of Latin America.
The country’s central bank has lowered interest rates in four of its last six meetings, the most recent occurring in December, and with inflation currently sitting below three percent, experts predict policy makers will again call for lower interest rates.
Juan David Ballen, an analyst at local brokerage Alianza Valores SA, told Bloomberg News that recent trends “support our forecast that even more rate cuts are to come…It would be prudent to take advantage of inflation being so low to keep lowering rates.” Ballen predicts that Colombia’s central bank will cut .25 percentage points at their January and February meetings.
At 4.25 percent, Colombia and Peru currently have the lowest rates among major Latin American economies. Chile has a rate of five percent, Mexico’s is at 4.5 percent and Brazil has a rate of 7.25 percent.
The December cut, the third time policy makers had lowered the rate in six months, came as the economy experienced an extreme slowdown. In the third quarter of 2012, GDP grew just 2.1% — the lowest third quarter growth rate in seven years — while Peru’s grew 6.5% and Chile’s 5.7%. The seven-person board was initially split, but in the end, the decision to lower interest rates passed because “almost all indicators on the progress of the economy [denoted] an apparent deterioration.”
“Inflation, the average of core inflation indicators and most measures of inflation expectations are below three percent,” the board announced after their December decision. “The latest information suggests that this situation will continue for some time.”
Despite increasing at the slowest pace since the 2008 global financial collapse, the Colombian economy has garnered positive remarks from several international economic institutions. On her December visit, the Director of the International Monetary Fund (IMF) praised the Colombian economy, saying it is outperforming the global economy.
“Colombia now has a very small deficit and a balanced debt and because of this their macroeconomic situation is very promising,” said IMF Director Christine Lagarde.
The World Bank, for its part, has approved two massive loans to Colombia as part of its ongoing “Country Partnership Strategy” in recognition of the Santos administration’s sound fiscal management.