Colombia’s central bank may cut its
benchmark interest rate for a second month as it seeks to spur
consumer spending and revive a slumping economy.
Policy makers will reduce the interbank rate to 9 percent
from 9.5 percent, according to 26 of 34 economists surveyed by
Bloomberg. One analyst expects the rate to stay unchanged,
while the others forecast cuts ranging from a quarter point to
a full percentage point.
The board unanimously voted to cut the rate last month for
the first time in three years after calls from President Alvaro
Uribe for lower lending rates to kick-start the economy. Before
December’s decision, when policy makers reduced the rate by
half a point, the bank had kept borrowing costs at a seven-year
high to keep a lid on inflation that exceeded the bank’s
“The bank has to be conscious of what’s happening in our
economy and the world,” said Paula Gonzalez, an economist at
Bogota-based trust-fund manager Fiducor SA, who expects a cut
to 9 percent. “They will need to be very careful of the
message they give to the market.”
Before December’s cut, the seven-member board increased
lending rates 16 times since mid-2006 to curb inflation as it
quickened to a seven-year high. Colombians borrowed at record
levels as efforts to reduce crime and violence caused by more
than 40 years of armed conflict with rebels encouraged consumer
spending, pushing economic growth in 2007 to its fastest pace
in almost three decades while also pressuring prices.
The central bank has said the economy may grow just 1
percent this year, compared with 8 percent in 2007 and a 3.1
percent pace in the third quarter of 2008, the latest figure
available. Finance Minister Oscar Ivan Zuluaga says the
government may have to review its 2009 estimate for a 3 percent
increase in gross domestic product.
Lower interest rates may prompt businesses to invest and
consumers to buy on credit. Cheaper loans also may spur
inflation by strengthening demand.
“We would not be too surprised if the central bank cuts
interest rates more aggressively,” said Carola Sandy, a Latin
America economist at Credit Suisse Group in New York, who
estimates the benchmark rate will end the year at 7.5 percent.
“The priority for the bank is now growth since inflation is
Industrial production fell 13 percent in November from a
year earlier, the biggest fall since June 1999, when an
economic and banking crisis in Colombia shuttered lenders and
led the government to nationalize several banks. Retail sales
slipped 3 percent from a year earlier.
Inflation, which peaked last year at 7.9 percent in
October, slowed in November and December, giving policy makers
room to reduce borrowing costs without fanning inflation. The
bank targeted inflation of no more than 4.5 percent last year.
Economists surveyed by Bloomberg expect annual inflation
will slow to 7.44 percent this month, according to the median
estimate of 15 analysts. The central bank has set an inflation
target this year of 4.5 percent to 5.5 percent. (Bloomberg)