Friday, July 27, 2012

Colombia cuts interest rate by 25 bps to 5.0%

    Colombia's central bank cut its key interest rates by 25 basis point to 5.0 percent due to slowing growth and declining inflation, with two board members suggesting an even-larger reduction. The cut was expected by some, but not all economists.
    Banco de la Republica Colombia said global economic growth was weakening more than expected  and excess global capacity and lower commodity prices were moderating inflationary pressures.
    The weaker growth was restricting the growth of Colombia's economy and this was expected to continue for the next few quarters, the bank said  in a statement.
    "According to the evaluation of the current balance of risks, all members of the Board considered it appropriate to reduce the intervention interest rate. Some members suggested further reductions to the finally adopted," the bank said.

    Colombia's first quarter Gross Domestic Product (GDP) rose 0.3 percent in the first quarter from the previous and the inflation rate in June was 3.2 percent, slightly down from May's 3.4 percent. Colombia's central bank targets a 3.0 percent inflation rate, plus or minus one percentage point. 
    The central bank's intervention rate has been steady since January, when it was raised by 25 basis points. In July 2011 the rate was 4.50 percent.
    "The weakening of the global economy is restricting the growth of the Colombian economy through lower external demand and lower international prices of major export products," the bank said.
    The bank said consumption and investment, the main basis for growth in 2012, will grow less, reducing pressures on production capacity and Colombia's economy is expected to grow between 3 and 5 percent this year. It said the estimate was wide due to the uncertainty surrounding how much the global economy will slow down.
    "For 2013 growth is projected similar to 2012. As expected, the level of uncertainty increases as the forecast horizon grows," the bank said.



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