Colombia cuts rate 50 bps and lowers growth forecast

    Colombia’s central bank cut its benchmark intervention rate by a further 50 basis points to 6.50 percent, a larger cut than expected by most analysts, and said further cuts would depend on how fast inflation falls to its 3.0 percent target and “excessive” economic slowdown.
     It is the third rate cut this year by the Central Bank of Colombia, which has lowered the rate by a total of 100 basis points as inflation continues to decelerate amid a sluggish economy.
    “In Colombia, recent indicators of economic activity, such as retail sales, industrial production and consumer confidence suggest a larger-than-expected weakening of the economy in the first quarter of of this year,” the central bank said.
      The bank’s staff lowered its 2017 growth forecast to 1.8 percent from 2.0 percent, within a range of 0.8 to 2.6 percent.
     In the last central bank survey, analysts lowered their 2017 growth forecasts to 2.02 percent from 2.3 percent, below the government’s target of 2.5 percent. Forecasts for 2018 were cut to 2.8 percent from 3.0 percent.
      Colombia’s Gross Domestic Product grew by an annual rate of 1.6 percent in the fourth quarter of last year, up from 1.2 percent in the third quarter.
     The bank’s board, this time with only six instead of seven members, was split, with four members approving the 50 basis point cut while two wanted to cut the rate by 25 points.
     Among the reasons for the rate cut, the central bank pointed to growing economic weakness and the risk of excessive deceleration from excess capacity in the economy along with uncertainty about how fast inflation will decelerate to the target of 3.0 percent, within a range of plus/minus 1 point.
    “The current level of the real policy interest is contractive,” the central bank said, adding that inflation expectations were also declining.
     Colombia’s inflation rate eased to 4.69 percent in March from 5.18 percent in February – the eight consecutive monthly decline – while inflation expectations for December 2017 and 2018 dropped to 4.4 percent and 3.5 percent, respectively.
     Colombia’s peso was trading at 2,941 to the U.S dollar today, up 2 percent this year.

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