Monday, January 28, 2013

Colombia cuts rate 25 bps, economy still below potential

    Colombia's central bank cut its benchmark intervention rate by a further 25 basis points to 4.0 percent, as expected, with the economy still growing below its potential and no upward pressure on inflation.
    Banco de la Republic Colombia also said it would expand its purchase of foreign exchange to keep down the peso by a monthly $500 million to a minimum total of $3 billion between February and May, with daily purchases of not less than $30 million.
    The central bank, which has now cut rates by five times since July for a total reduction of 125 basis points, did not give any hints about its next move, but said it would depend on new information.
    Data from the fourth quarter of 2012 suggests that household spending will grow slightly slower than in the third quarter due to uncertainty over investments, especially civilian works and construction.
     "In short, the Colombian economy is growing below its potential, observed and projected inflation falling below the target of 3%, and no looming upward pressure on it in the near future," the central bank said in a statement.

   Colombia's economy expanding steadily in the first half of last year but a delay in mining and energy investments hit growth in the third quarter when the Gross Domestic Product contracted by 0.7 percent, cutting the annual growth rate to 2.1 percent from 4.9 percent in the second quarter.
    Growth among Colombia's trading partners has been in line with expectations but external demand is expected to remain weak and similar to 2012. Colombia's economy is forecast to grow 2.5-4.5 percent in 2013, with 4.0 percent the more likely figure, the bank said.
   Colombia's inflation rate fell by more than expected to a new low for the year of 2.44 percent in December from November's 2.77 percent.

    "Both the average core inflation, as inflation expectations were further reduced and are below the long-term target (3%)," the central bank added.



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