Colombia central bank set to again lower its benchmark interest rate

Colombia Central Bank

Colombia’s central bank board is expected to once again lower its benchmark interest rate at its meeting on Tuesday, in a bid to bolster the economy ahead of a likely recession.

A poll by Reuters analysts said the seven-member board would back a rate cut for the fourth consecutive month, but that policymakers will probably moderate reductions as borrowing costs come close to zero.

Twelve of 20 analysts surveyed estimated the majority of the board will vote to reduce the rate by 25 basis points to 2.50%, while the remaining eight analysts predicted a cut of 50 points to 2.25%.

The bank cut the rate by half a percentage point at its meetings in March, April and May, taking borrowing costs to historic lows, but at last month’s meeting two board members voted for a lesser cut of 25 basis points.

The bank has taken repeated liquidity measures as the twin crises of low oil prices and a coronavirus lockdown batter the economy.

“Economic activity had a very strong hit and inflation has been falling in a significant way, which creates a perfect scenario to lower interest rates,” said Camilo Perez, head of economic investigation at Banco de Bogota.

Perez expects a cut of 50 basis points.

Analysts’ expectations for the interest rate at end of the year stand between 2% and 2.5%, depending on the behavior of inflation.

Consumer price growth is expected to fall below the long-term central bank target of 3% at the close of 2020, amid a sharp drop in domestic consumption. The 12-month measure of the indicator stood at 2.85% in May.

The finance ministry estimates the Colombian economy will contract 5.5% this year.

The Andean country started a national quarantine in late March to contain the spread of COVID-19. Though some restrictions have been relaxed, the quarantine is set to last until July 15.

Was it worth reading? Let us know.