Rate Raising Comes to Colombia Finally

February 25, 2011

The Colombian interest rate was raised today by 25 basis points in the first advance since July 2008.  The benchmark central bank rate had been 3.0% since a 50-basis point cut on April 30, 2010 that culminated and 8-step, 700-basis point reduction beginning in December 2008.  600 bps of that drop was done in 2009.  Inflation is now marginally above 3%, the middle of a 2-4% target range, and domestic demand and credit are projected to expand at their trend rates in 2011.  Expected inflation is running above actual inflation. 

The Central Bank of the Republic of Colombia’s action today follows a 25-basis point tightening by the Bank of Chile last Thursday.  Chile’s 3.5% key interest rate level is similar to Colombia, and they are generally lower than other Latin American central bank rates, such as the Brazilian Selic rate.  The Brazilian credit policy committee, COPOM, meets March 1-2 and is expected to tighten further at that time.  In Chile, meanwhile, the central bank rate has thus far increased by 300 basis points from a cyclical low of 0.5% prior to June 2010.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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