Colombia’s Unexpected Rate Cut

May 3, 2010

Colombian bond yields and the peso fell today following Fridays tenth rate cut by the Bank of the Republic of Colombia since December 2008 but first since November 2009.  The resumed easing cycle was not expected by analysts and justified by monetary authorities on the grounds of evidence of falling actual and expected inflation.  Core inflation is near to the 2-4% target floor, and a statement from officials express confidence that inflation would stay in target this year and next.  The latest GDP and industrial output figures show on-year rises of 2.5% and 3.0%, and officials admit that GDP has lately growth faster than they had assumed.  The key policy rate was at 10% in November 2008 but then cut by 50 bps in December and January, 100 bps in February, March, April and May 2009, 50 bps in June, 50 bps in September, 50 bps and last Friday again by 50 bps to 3.0%.  According to the released statement, future policy moves are an open question in timing and direction and will depend upon developing information as time passes.

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

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