Colombia Bond Yields Plunge on Interest-Rate Cut; Peso Unchanged

Colombian bond yields dropped the most in three years after the central bank unexpectedly lowered borrowing costs last week by a half-percentage point, citing weak growth and slower-than-target inflation.

Yields on peso bonds due in 2024 fell 25 basis points, or 0.25 percentage point, to 4.86 percent at 10:12 a.m. in Bogota, according to the central bank. The drop was the biggest on a closing basis since May 2010. Colombian markets were closed yesterday for a national holiday.

Banco de la Republica accelerated the pace of reductions in borrowing costs when it cut the target lending rate by 50 basis points to 3.25 percent on March 22. Policy makers reduced benchmark borrowing costs by a quarter-percentage point at each of the central bank’s previous four meetings.

Last week’s decision surprised all 32 analysts surveyed by Bloomberg, with 27 economists forecasting another quarter-point cut last week while five projected no change.

The peso was unchanged at 1,829.10 per U.S. dollar.

Finance Minister Mauricio Cardenas, who is also president of the central bank’s board, told reporters last week after the rate cut announcement that the lower interest rate will help “break with expectations for a stronger currency.”

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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