Colombia's central bank cut its benchmark intervention rate by another 25 basis points to 3.75 percent, it's sixth rate cut since July, saying the economy is still growing below potential and inflation is below the bank's target with no upward pressures looming.
Banco de la Republica Colombia, which has cut rates by 150 basis points since it embarked on an easing cycle in July 2012, said average core inflation and inflation expectations were below the long-term average of 3.0 percent and inflation had slowed more than expected.
"The slowdown in inflation, which was higher than expected, has occurred in the context of a negative output gap, a situation that can keep inflation expectations at low levels for a longer period of time," the bank said after a meeting of its board.
"This also decreases the likelihood that unanticipated increases and supply shocks jeopardize compliance with the inflation target," it added.
Colombia's inflation rate fell to 2.0 percent in January from 2.44 percent in December, with markets expecting the bank to cut rates following statements by the bank's governor that he wanted to get inflation back to the midpoint of the bank's target and minutes from the January meeting - when the bank also cut rates - pointing to further rate cuts.
The central bank targets inflation of 3.0 percent, plus/minus one percentage point.
Colombia's economy contracted by 0.7 percent in the third quarter of last year from the second quarter for annual growth in third quarter Gross Domestic Product of 2.1 percent, down from 4.9 percent in the second quarter.
Indicators show that private consumption in the fourth quarter grew slightly less than in the previous two quarters with the bank estimating GDP growth of 3.3-3.9 percent with uncertainty around investments in engineering and construction still high.
Activity in the first quarter of 2013 will be affected by fewer working days as well as supply shocks in coal exports and lower demand from Venezuela, the bank said.
Earlier this month, the bank's governor, Jose Uribe, said inflation in 2013 would likely be below 2.44 percent and the economy would expand between 2.5 and 4.5 percent.