Bloomberg News

Colombia Cuts Rate to 3.75% to Boost Slowest Growth in Andes

February 22, 2013

Colombia’s central bank cut interest rates for the sixth time since June, as policy makers try to revive the slowest growth in the Andean region amid below-target inflation.

Banco de la Republica, led by bank Governor Jose Dario Uribe, cut its benchmark rate by a quarter point to 3.75 percent, as forecast by 26 of 28 analysts surveyed by Bloomberg. One analyst forecast no change, while one forecast a half-point cut. The decision was unanimous, Uribe said.

Policy makers have lowered borrowing costs 1.5 percentage point since June, as the economy expanded at its slowest pace in four years, and annual inflation fell below target. The central bank will probably also cut by a quarter point in March, as growth shows little sign of rebounding, said Juan David Ballen of Alianza Valores SA brokerage, the analyst with the most accurate track record of calling central bank decisions in Bloomberg surveys. Board members today also cited a coal strike and Venezuela’s devaluation in their decision.

“Economic growth in the first quarter will be affected by the lower number of working days in the period, and for supply shocks in exports of coal and for the risk of lower demand from Venezuela,” policy makers said in their statement that accompanied their decision.

No ‘Clear Indication’

Workers at Cerrejon, Colombia’s largest coal mine, walked off the job Feb. 7 for higher pay and health benefits, while Colombia’s second-largest producer, Drummond Inc. had its loading license suspended Feb. 6 after it dumped coal into the Caribbean Jan. 13. Coal is Colombia’s No. 1 export after oil.

President Hugo Chavez’s government devalued the bolivar 32 percent to 6.3 bolivars per dollar starting Feb. 13. Trade between the neighboring Andean nations has been recovering since plunging in 2008-2010.

“The data still don’t show a clear indication of improvement in construction licenses, industry, financial services or mining,” Ballen said in a telephone interview before the rate decision. “These have been decelerating over the last three quarters, and we still don’t see signs that this trend is changing.”

Annual inflation eased to 2 percent last month, taking it to the lower bound of policy makers’ 2 percent to 4 percent target range. Uribe said Feb. 8 that the central bank wants to get the annual pace of consumer price increases back up to the 3 percent midpoint of the range. Colombia and Chile are Latin America’s only major economies with below-target inflation.

‘Room for Cuts’

The central bank may now pause to gauge the effect of the 150 basis points of cuts, said Daniel Lozano, head analyst at brokerage Serfinco SA.

“In terms of inflation there’s still room for cuts, but the economy is going to start feeling the effect of the past reductions,” said Daniel Lozano, head analyst at brokerage Serfinco SA.

Serfinco expects Colombia to hold the rate at 3.75 percent until the end of 2013.

The economy expanded 2.1 percent in the third quarter from a year earlier, the weakest growth since 2008. The central bank says gross domestic product probably rose 3.3 percent to 3.9 percent last year, down from 5.9 percent in 2011. GDP will rise 2.5 percent to 4.5 percent this year, according to the central bank’s forecast.

At its January meeting, the central bank said it would boost dollar purchases to at least $30 million a day and will buy at least $3 billion between February and May. Finance Minister Mauricio Cardenas has said repeatedly that he wants to weaken the peso to 1,950 per U.S. dollar.

Board, Peso

Today’s decision was taken by five board members, instead of the usual seven, after Fernando Tenjo and Juan Jose Echavarria left the bank in January.

President Juan Manuel Santos yesterday named Deputy Finance Minister Ana Fernanda Maiguashca and Adolfo Meisel, head of the central bank’s regional branch in Cartagena, to replace the outgoing pair.

Yields on the government’s 10 percent peso debt due in 2024 have fallen 69 basis points, or 0.69 percentage point, in 2013 to 4.97 percent, as traders trimmed bets on rate cuts.

The peso has declined 1.8 percent this year as the government and central bank announced increased dollar purchases to stem a rally that sent the peso to a 17-month intraday high on Jan. 2.

In trading today, the currency closed little changed at 1,798.99 per dollar from 1799.20 yesterday.

Cardenas today said that the peso will continue on a weakening trend.

To contact the reporters on this story: Matthew Bristow in Bogota at mbristow5@bloomberg.net; Oscar Medina in Bogota at omedinacruz@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


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