Friday, July 31, 2020

Colombia cuts rate 5th month in a row to boost activity

    Colombia's central bank cut its benchmark interest rate for the fifth time this year, saying the balance of risks suggest it is appropriate to provide an additional boost the economy and the impact of monetary policy will be greater if the conditions associated with the COVID-19 pandemic allow for a gradual reopening of different economic sectors.
     The Central Bank of Colombia cut its main interest rate by another 25 basis points to 2.25 percent and has now cut it by 200 points this year following earlier cuts in March, April, May and June. 
      The central bank's board noted that inflation in June had decelerated to 2.19 percent from 2.85 percent in May and inflation expectations are continuing to decline, with the rate below the central bank's target of 3.0 percent.
      Aggregate demand in the economy is weaker than expected, the bank said, adding spare capacity is high and the labor market is deteriorating within the context of global economic uncertainty.
     But financial market conditions have improved since the start of the pandemic, with the abundant liquidity in global and local markets reflected in lower sovereign risk premia and foreign exchange volatility.
     Colombia's economy shrank 2.4 percent in the first quarter of this year from the previous quarter and the government has forecast 5.5 percent contraction this year. Year-on-year the economy grew 1.1 percent in the first quarter.
     Today the bank said its technical team had lowered its estimate for the economy's contraction this year to between 6 and 10 percent from an earlier forecast of 2 to 7 percent contraction. Consumer price inflation will be between 1 and 2 percent.
     Colombia's peso fell sharply in March against the U.S. dollar, as most other currencies, and then bounced back from April until mid-July. 
      Since then, it has eased and fell further today to trade at 3,732.8 to the dollar today, down 12 percent this year.


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