Unexpected Colombian Rate Cut

September 25, 2009

The Bank of the Republic surprised analysts today with a 50-basis point reduction of its key interest rate to 4.0%.  The previous two monthly policy meetings on August 28 and July 24 had result in no further drop in rates.  The rate was 9.5% at the beginning of 2009, but was lower by 50 bps in January, 100 bps each in February, March, April, and May, and reduced by 50 bps in June to 4.5%.  After three quarters of negative on-year growth including 0.5% last quarter, officials had been looking to recovery.  Today’s move was prompted because the economy hasn’t perked up as much as hoped and to counter any drag from Venezuelan and Ecuadorian restraints on Colombian exports.  Inflation is less than half its peak levels in 2008 and, at 3.1%, below the short-term target range.  Officials are again hopeful that further interest rate reductions will not be needed.

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


Comments are closed.