Colombia Central Bank ‘Reluctant’ to Cut Rates More, Santos Says

Colombia’s central bank board has probably ended its current cycle of interest rate cuts, following last month’s surprise quarter-point reduction, President Juan Manuel Santos said.

Policy makers including Finance Minister Mauricio Cardenas voted 4-3 to lower the benchmark interest rate to 4.5 percent on Nov. 23, a move forecast by only two of 33 analysts surveyed by Bloomberg. Cardenas backed the cut after urging looser monetary policy to curb the appreciation of the peso.

“We’ve been trying to convince the board to lower the interest rate, more on revaluation than on any other issue,” Santos said in an interview yesterday in the Presidential Palace in Bogota. “The bank will probably be very reluctant to continue lowering it.”

Colombia has cut borrowing costs three times since July, as weak world growth damped demand for the Andean nation’s oil, coal and coffee. Industrial output shrank 1.3 percent in September from a year earlier, its second consecutive year-on- year decline. Manufacturers have been hurt by the peso’s 6.9 percent rally against the dollar this year, the fifth-best performance among the 31-most traded currencies tracked by Bloomberg.

Cardenas called the latest rate cut an exercise in “adjustment and calibration.” Yields on Colombia’s benchmark bonds due July 2024 have fallen 0.11 percentage point to 5.98 percent since the reduction.

In a statement accompanying the decision, the central bank cited the weak global economy and a contraction in domestic industrial production.

Interbolsa

The collapse of Interbolsa SA (INTBOL)’s brokerage, Colombia’s biggest, didn’t influence the central bank’s decision, Santos said. The fall of the brokerage had been an isolated case and did not reflect widespread excessive risk-taking, Santos said.

“I can guarantee you it’s completely contained,” Santos said. “We acted on time and with sufficient force, without doing too much or too little.”

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

The government’s peace talks in Havana with guerrillas from the Revolutionary Armed Forces of Colombia, or FARC, offer “only an upside” for foreign investors, Santos said.

“If we are successful, in economic terms in the long term it will create a very big peace dividend,” Santos said. “But, if we fail, there will be no cost for the country because we are not giving these people any room for any advantage militarily or in terms of control of territory.”

Operating Principles

Colombian armed forces yesterday said they killed at least 20 FARC rebels after launching the bloodiest battle since peace talks started with the Marxist group two months ago.

Talks aimed at ending Colombia’s half-century conflict resumed last month in Havana after kicking off in Oslo in October.

If the peace talks lead to revelations that foreign companies made extortion payments to illegal armed groups, the government will expel them from Colombia, Santos said.

“I have said very clearly that any company that is paying extortion will be kicked out,” Santos said. “I hope that they are not contributing to finance these groups, but one never knows. Truth, reparations and justice are the principles that need to be applied as a solution to this conflict. They might reveal companies that are making payments.”

To contact the reporters on this story: Matthew Bristow in Bogota at mbristow5@bloomberg.net; Michael Smith in Santiago at mssmith@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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