Central Banker Says Colombia Won’t Necessarily Cut Policy Rate

Colombia “won’t necessarily” take advantage of the slowest inflation in six decades to cut interest rates this week, central bank co-director Cesar Vallejo said.

The bank’s 7-member policy committee will consider a range of factors such as the behavior of credit indicators and government spending, as well as gross domestic product and consumer prices, before deciding whether another cut is warranted, Vallejo said.

“Of course there is space to cut rates,” Vallejo said in a March 15 phone interview.“Inflation is low, observed GDP is very possibly below potential GDP. Does that mean we’re going to cut rates? No, not necessarily.”

Colombia has cut borrowing costs six times since June, as economic growth slowed to the lowest in nearly 4 years and industrial output slumped. Nineteen analysts surveyed by Bloomberg forecast another quarter point cut on March 22, while 3 analysts predict that the bank will hold the policy rate at 3.75 percent.

The central bank’s board will study consumer and commercial credit growth and default rates, among other things, Vallejo said. Changes in borrowing costs can take between 9 and 12 months to affect output, and longer to affect inflation, he added.

The economy grew 3 percent in the fourth quarter from a year earlier, according to the median forecast in a Bloomberg survey, slower than Peru and Mexico, while faster than Brazil and Argentina. The national statistics agency will publish its fourth quarter GDP report on March 21.

Finance Minister Mauricio Cardenas, who chairs the central bank’s board meetings, told reporters March 15 that “everything indicates” that Colombia can continue to cut interest rates.

Inflation slowed to 1.84 percent in February, the lowest rate since 1955. Colombia targets inflation of 3 percent, plus or minus 1 percentage point.

To contact the reporter on this story: Matthew Bristow in Bogota at mbristow5@bloomberg.net

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net

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