Colombia Bank Votes 4-3 for Rate Cut After Brokerage Implosion

Colombia’s central bank board voted 4-3 to cut interest rates to the lowest level in a year after the nation’s biggest brokerage collapsed and industry contracted for a second month.

Banco de la Republica, led by bank Governor Jose Dario Uribe, cut its benchmark interest rate by a quarter point to 4.5 percent on Nov. 23, as forecast by only two of 33 analysts surveyed by Bloomberg. Thirty-one analysts forecast no change in the rate. In a speech in Cartagena, President Juan Manuel Santos said Finance Minister Mauricio Cardenas provided the decisive vote in the 4-3 decision.

“Colombian growth has slowed from rates observed above trend levels in the second half of 2011,” policy makers said in their statement. “The weakness of the world economy and the decline in internal demand have been reflected in lower export growth and a contraction in growth and in the contraction in industrial output.”

The move came after the bank opened a so-called liquidity window for brokerages in an effort to avoid disruptions in financial markets following the collapse of Interbolsa SA’s brokerage this month. The rate cut may have been intended to restore investor confidence, said Daniel Velandia, head of research at Correval SA brokerage in Bogota.

‘Totally Unexpected’

“This was totally unexpected,” Velandia said in a telephone interview after the decision. “Although they don’t mention it in the statement, it’s possible that the Interbolsa case gave the bank an incentive to generate confidence in the market with a rate cut.”

The central bank last lowered borrowing costs at its July and August meetings, citing weakening global growth that curbed demand for exports. Cardenas described this month’s move as an exercise in “adjustment and calibration.” The finance minister’s comments suggest that the rate cut is the last in the cycle, said Francisco Rodriguez, senior Andean economist at Bank of America Corp.

“The majority of the board is seeing signs of international weakness being transferred to the domestic economy through export demand, and saw one more rate cut as necessary to ensure that the economy grows near potential next year,” Rodriguez said Nov. 23, in answer to an e-mailed question.

Cardenas said Nov. 7 that regulators would liquidate Interbolsa’s brokerage after it had failed to meet a loan payment a week earlier.

Output, Peso

Industrial output shrank 1.3 percent in September from a year earlier, its second consecutive contraction.

Manufacturers have been hurt by weak global growth and by the peso’s 6.3 percent rally against the dollar this year, the fifth-best performance among the 31 most-traded currencies tracked by Bloomberg.

The yield on the government bonds due July 2024 has fallen nine basis points this month.

Annual inflation slowed to 3.06 percent in October, the weakest pace among Latin America’s seven biggest economies after Chile, from 3.08 percent in September. The central bank targets inflation of 3 percent, plus or minus one percentage point.

Credit growth slowed for a ninth straight month in September, to 15.2 percent, its slowest pace in almost two years.

Gross domestic product grew 4.9 percent in the second quarter from a year earlier, the third-fastest expansion among Latin America’s seven biggest economies, behind Peru and Chile.

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: Philip Sanders at psanders@bloomberg.net

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