Colombia makes first rate cut since 2010
Colombia’s central bank has cut its benchmark lending rate for the first time in two years, responding to slowing global growth.
The bank on Friday also cut its projection for growth in gross domestic product for 2012 from 5 per cent to 3 per cent.
“The weakening of the world economy is restricting the growth of the Colombian economy through lower demand and lower international prices of major export products,” the central bank said.
Latin America’s fourth-largest economy expanded nearly 6 per cent last year, outpacing much of the region. However growth slowed in the first quarter to 4.7 per cent on an annualised basis.
“The bank wants to show it can react quickly so as to give a boost to the Colombian economy,” said Juana Téllez, an analyst with the BBVA bank in Bogotá.
Last week, José Dario Uribe, the central bank chief, said the weakness of exports and industry had surprised policy makers.
Colombia’s rapid growth in recent years had led some Wall Street analysts to call it “The New Brazil”. Brazil recently cut its key rate for an eighth straight meeting to a record 8 per cent.
Colombia’s investment appeal has drawn dollars into the country, pushing the peso more than 9 per cent higher since the start of this year.
Juan Manuel Santos, president, has repeatedly suggested that the country’s central bank should intervene to stop the peso’s rally, in order to help exports and build international reserves.
Although the issue of dollar purchases was discussed during Friday’s meeting, there was no change to the current $20m a day dollar-buying programme that started in February and is set to end in November. According to the central bank, it had $34.3bn in international reserves in June.
The rate cut brought Colombia’s benchmark overnight lending rate down to 5 per cent.
“We felt there was going to be a cut,” Ms Téllez said. “There is a lot of uncertainty overseas and an industry slowdown internally.”
Since taking office two years ago Mr Santos, a former finance minister, has set about expanding exports. Riding high on a commodities boom, the government has taken advantage of investor interest in the resource-rich parts of the country that were off-limits during the peak of the drug-fuelled guerrilla and paramilitary violence of the 1980s and 1990s.
Colombia is now the world’s fourth exporter of coal and the region’s fourth-largest oil producer.