Colombian Benchmark Interest Rate Sliced 50 Basis Points to 3.5%

November 24, 2009

Banco de La Republica, Colombia’s central bank, implemented a ninth and unexpected rate cut of 50 basis points, citing reduced expected inflation, lower actual inflation at a sub-target 2.7%, and weak economic activity.  A drop in retail sales of 7.3% over the last 12 months was the worst outcome since at least 1998, and industrial production recorded a deeper 3.8% decline in the year to September than the 3.4% drop in the year to August.  Real GDP contracted in both the first and second quarter and will at best eke out a tiny rise for 2009 as a whole.  Weakening money and credit growth is a concern, and the peso’s 20% on-year rise against the dollar is another.

From 10% a year ago, the central bank benchmark interest rate was cut by 50 basis points each last December 19 and January 30, then by 100 bps each on February 27, March 20, April 30, May 29, and finally by 50 bps on June 19, September 25 and November 23.  Most analysts did not anticipate this month’s further rate cut, and even among those flagging the risk of a drop, at least half thought its size would be reduced to a move of 25 bps.

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


Comments are closed.