Banco de la Republica on Dec. 19 became the first central
bank in Latin America to reduce its overnight lending rate amid
the global financial crisis, unexpectedly cutting it by half a
percentage point to 9.5 percent. The move “consolidates a
change in the stance of monetary policy that had been in the
works for several months,” the central bank said in minutes of
the meeting released today.
“The minutes confirm expectations the central bank will
continue cutting rates and bonds are reacting favorably to
that,” said Carolina Ramirez, chief analyst at Banco Santander
in Bogota. She predicts that policy makers will reduce the key
rate to 8 percent by year-end.
The yield on the nation’s benchmark 11 percent bonds due in
July 2020 fell five basis points, or 0.05 percentage point, to
10.50 percent at 12:30 p.m. New York time, according to
Colombia’s stock exchange. The price rose 0.331 centavo to
103.121 centavos per peso.
Yields earlier rose to 10.62 percent following a government
report that showed consumer prices rose more than forecast last
month, led by an increase in food costs.
Colombia’s inflation quickened to 0.44 percent last month,
the national statistics agency said Jan. 2, higher than the 0.29
percent median forecast in a Bloomberg survey. Annual inflation
ended 2008 at 7.67 percent, more than the central bank’s 3.5
percent to 4.5 percent 2008 target.
“December inflation scared some market players but the
minutes helped appease their concern,” said Ramirez. “The
increase in December inflation was due to bad weather but all in
all inflation will drop this year as demand declines and the
She predicts annual inflation will fall to 5.5 percent by
the end of 2009, at the top end of the central bank’s inflation
target. Policy makers target inflation between 4.5 percent and
5.5 percent this year.
The peso advanced 0.4 percent to 2,224.51 per dollar, from
2,232.5 on Jan. 2, according to the Colombian foreign-exchange
electronic transactions system, known as SET-FX. (Bloomberg)