Rate Decisions in Russia and Colombia

March 26, 2010

Bank Rossii implemented another 25-basis point cut of its one- and seven-day repo rates, this time to 7.25%, and its refinancing rate to 8.25%.  These were the twelfth cuts since April 2009.  The last one had been announced February 19.  As an oil exporter, Russia experienced a very severe economic contraction but has benefited from the rebound in commodity prices, better functioning world financial markets and improved demand in export markets.  Industrial production in January was 7.8% greater than a year earlier.  A dramatic turn for the better in the ruble has improved CPI inflation, which at 7.2% on year in January was down from 9.1% last November and 13.9% in the year to January 2009.

The Central Bank of the Republic of Colombia kept its benchmark interest rate at 3.5% as it had done at three prior meetings on February 26, January 29, and December 18.  Projected 2.5% economic growth this year would be weak by Colombian standards, and CPI inflation of 2.1% in February was near the floor of the 2-4% targeted range.  The peso has been stronger than officials would like.  Beginning with rate cuts of 50 basis points each in December 2008 and January 2009 and followed up with reductions of 100 bps in February, March, April and May plus three more cuts of 50 bps in June, September and last November, central bank officials in all reduced their key rate by 650 basis points from 10% after the Great Recession hit.  Growth prospects continue to be dampened by Venezuela’s politically-inspired embargo against Colombian exports.

The Russian and Colombian rate decisions today were each expected.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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