Colombian Finance Minister Óscar Iván Zuluaga vehemently asked the
Central Bank to cut its interest rates and support the Government’s
fight against inflation.
But according to 16 of 32 economists surveyed by Bloomberg, the policy makers will hold the interbank rate at a seven-year
high of 10 percent. Twelve analysts expect the Bogota-based bank to lower
the benchmark rate to 9.75 percent today and two analysts
forecast a cut to 9.5 percent.
The seven-member board may leave borrowing costs unchanged, betting that a cut would stoke
expectations that inflation will accelerate.
“Inflation remains high and hasn’t peaked yet,” said
Benito Berber, a strategist at RBS Greenwich Capital Markets Inc.
in Greenwich, Connecticut. “It will be a tough decision.”
Policy makers have said that their next change to the rate,
when it comes, will be a cut. In the past two meetings, some
board members have lobbied for a reduction of as much as a half
point on concern that economic growth may slow further. Bank
director Carlos Gustavo Cano said in a Dec. 11 interview that he
disagreed with the board’s decision to raise rates this year.
Inflation this year peaked at 7.94 percent in October and
eased to 7.73 percent last month, above the central bank’s target
range for this year of 3.5 percent to 4.5 percent. Still,
inflation expectations over the next 12 months fell to 5.36
percent in the central bank’s December survey of economists, from
5.84 percent last month. The bank targets inflation of no more
than 5.5 percent next year.
As the bank battles inflation, it also must contend with
slowing economic expansion. The central bank said growth next
year could decelerate to as little as 1 percent, dragged down by
the first simultaneous recession since World War II in the U.S.,
Europe and Japan.
Gross domestic product expanded 3.7 percent in the second
quarter, the slowest pace since 2003, down from 8 percent in the
same period a year ago. Third-quarter GDP figures will be
released Dec. 22.
“The economy will shrink very fast next year, and that will
impact employment,” said Bertrand Delgado, an economist with New
York-based research firm IDEAglobal. “The board will have a
difficult time on this decision, but inflation expectations will
continue to decline as the economy decelerates rapidly.”
The central bank board, headed by Jose Dario Uribe and
Zuluaga, may wait for Christmas shopping to end before cutting
rates, said Rupert Stebbings, head of international sales at
Interbolsa SA.
The board may also want to see by how much the minimum wage
is increased next year to see how that will impact inflation,
Stebbings said.
“There are many variables that lead us to expect the rate
to be held another month,” said Stebbings, who expects a half-
point cut early in 2009. “They will want to play it safe.”