Thursday, April 30, 2020

Colombia cuts rate 2nd time, to boost US dollar sales

     Colombia's central bank cut its rate for the second time this year to continue what it described as a "countercyclical drive of monetary policy" and said it would increase the amount of currency hedging by conducting new sales of U.S. dollars through forward operations for up to US$1 billion.
     The Central Bank of Colombia (CBC) cut its benchmark interest rate by another 50 basis points to 3.25 percent and has now cut it by 100 points this year following a similar cut in March.
     The rate cut was expected by analysts who expect the rate to be cut further to 3.0 percent by mid-year.
      In April 2014 CBC embarked on a tightening cycle, raising its rate 14 times by 450 basis points to 7.75 percent in July 2016.
      But in December 2016 it reversed course, lowering the rate 12 times until it paused in April 2018.
      The rate cut in March this year was the first cut since then.
      In today's statement, CBC said it would also continue to hold foreign exchange swaps for up to US$400 million.
      Earlier this month the International Monetary Fund (IMF) forecast Colombia's economy, which remained resilient last year with growth of 3.3 percent, would contract 2.4 percent this year due to the disruptions from the Covid-19 pandemic and lower oil prices.
      This would be Colombia's first economic recession since 1999. Growth in 2021 is expected to rebound and remain around 3.5 percent over the medium term, supported by domestic demand.
     Colombia's peso fell sharply at the start of March but has stabilized since then and was trading around 3,958 to the U.S. dollar today, down 17 percent this year.


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