Colombian and Mexican Rate Cuts

June 20, 2009

Central banks in Colombia and Mexico each cut their policy rate on Friday by 50 basis points.  The consensus of analysts had anticipated somewhat smaller reductions, and Colombian officials indicated an intent not to cut further in the near term.

  • Colombia intervention has been halved to an 11-year low of 4.5% from 9% prior to December 19th.  The drop was engineered in six steps including three of 100 bps each in March, April, and May.  CPI inflation stands currently at 4.8%, almost three percentage points lower than in December.  Real GDP contracted 4.1% at a seasonally adjusted annual rate in the final quarter of 2008 and was lower than a year earlier.  The budget and current account deficits each exceed 3% of GDP, and the jobless rate is above 10%.  Colombian officials expect the 450-bp total decline in their rate to provide significant support for an eventual recovery.
  • The Mexican 50-bp rate cut was also the sixth of the cycle.  In all the Bank of Mexico’s overnight interbank funding rate has been reduced by 350 basis points from 8.25% at the start of 2009 to the new rate level of 4.75%.  Mexico had the additional growth depressant of the swine flu outbreak.  Real GDP tumbled 21.5% saar last quarter and by 8.2% from the first quarter of 2008.  Inflation has not dropped as much as hoped, partly because of peso depreciation last year.  Consumer prices rose 6.0% in the year to May, but a downtrend in coming months will be assisted by the peso’s partial rebound in recent months.  As in Colombia, the Bank of Mexico is not believed to be inclined to ease much further in coming months.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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