Friday, March 27, 2020

Colombia cuts rate 1st time in 2 years, boosts liquidity

    Colombia's central bank cut its key interest rate for the first time in almost two years and launched new measures to boost liquidity to ease the financial burden on households and business during the outbreak of the coronavirus and ensure financial markets continue to function properly.
     The Central Bank of Colombia (CBC) cut its benchmark interest rate by 50 basis points to 3.75 percent, the first rate cut since April 2018.
     CBC's board was unanimous in its policy decision, which it said would contribute to the future recovery of domestic demand once markets begin to function normally.
    "The country and the economy are going through an extraordinary and unprecedented situation," CBC said, prioritizing an ample and timely provision of liquidity, both in pesos and U.S. dollars.
     In addition to earlier measures, the central bank on March 30 will auction up to $1 billion in U.S. dollars, with any amount not awarded to be auctioned on the next occasion until the quota is exhausted or until the remaining amount is $25 million.
     On the same day, March 30, CBC will conduct currency swaps of up to $400 million in which the central bank sells U.S. dollars for cash and buys them back in 60 days. Any amounts not awarded on the first day of the auction will also be auction on the next occasion until the quota is exhausted or the amount is less than $25 billion.
     These new measures will raise the balance of FX swaps to $800 million and currency forwards to $2 billion, CBC said.
     Colombia's peso fell sharply on March 11 and 12 in response to the fall in crude oil prices and plunging stock markets worldwide, but has rebounded slightly since then.
     But today the peso again fell in response to the rate cut to 4,024.1 to the U.S. dollar to be down 18.4 percent since the start of this year.
     At an extraordinary board meeting on March 23, CBC decided to inject around $10 billion in permanent liquidity into the financial system through the purchase of private securities issued by credit institutions, with a remaining maturity of less than three years. The first auction took place on March 24.
     CBC also decided to buy up to $2 billion of treasury bonds, known as TES, during the rest of March and to continue carrying out auctions of private securities for $500 billion on days when there are no scheduled auctions by private parties.



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