Colombia’s central bank ignored pressure to accelerate the pace of interest rate cuts as policymakers weigh fiscal risks that sent the peso to its weakest level in more than a year.
The seven-member board voted 4-3 to cut interest rates by half a percentage point to 9.75%, Governor Leonardo Villar told reporters in Bogota on Thursday. The minority voted for a larger reduction, to 9.5%.
“Today’s rate cut continues to support economic growth and maintains the necessary caution given the inflation risks that still exist,” Villar said, reading the bank’s statement.
Twenty-one of 28 economists polled by Bloomberg predicted this move, while the rest expected a larger cut of three-quarters of a percentage point.
The bank also increased its economic growth forecast for this year from 1.8% to 1.9%. In 2025, production will increase by 2.9%, compared to a previous estimate of 2.7%, the bank said.
President Gustavo Petro, Finance Minister Ricardo Bonilla and private bankers have repeatedly called for faster easing to revive economic growth. But the majority of the bank’s board has so far refused to do so, fearing inflation will not return to its target quickly enough.
A constitutional reform bill in Congress that would increase transfers from the treasury to regional governments spooked investors, adding to fears about the already large budget deficit. The bill’s passage in the Senate contributed to the currency’s 4.9% decline this month, to its weakest level in 17 months.
Although annual inflation has eased to 5.8% from last year’s peak of 13%, it still exceeds the central bank’s target of 3%. Economists consulted by the central bank predict price increases will slow to 3.8% by the end of next year.
Elsewhere in the region, the central banks of Mexico, Chile and Peru cut interest rates at recent meetings, while a rebound in inflation has prompted Brazil to raise borrowing costs.
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