Colombian interest rate cuts may have only a “subdued” impact on the economy if they are carried out cautiously, central bank Governor Jose Dario Uribe said.
“Market participants may perceive that movements in the policy rates are too timid to concentrate macroeconomic scenarios around a more favorable path,” Uribe said in a March 15 speech posted on the central bank’s website yesterday. “In these circumstances, additional, stronger movements in the policy rate may be warranted to achieve the goals of monetary policy.”
The central bank unexpectedly accelerated the pace of interest rate cuts at its March 22 policy meeting with the first half point cut in nearly three years, saying that monetary stimulus is reaching the economy at a slower pace than it wants. After the meeting, Finance Minister Mauricio Cardenas told reporters the government is “pushing” banks to cut their lending rates, after six quarter point cuts to the policy rate failed to reach Colombian consumers.
The average annual interest rate on consumer loans rose to 19.2 percent in January, from 19.1 percent in June before the bank began cutting rates. Average mortgage rates rose 7.7 percentage points above the government’s benchmark 10-year peso bonds last month, the most since 2009, according to data from Titularizadora Colombiana SA, which issues mortgage-backed bonds.
“A simple examination of the current cycle of reductions of policy rates reveals a transmission to loan and deposit rates that is slower that in the past two cycles of changes in the monetary policy stance,” Uribe said. The central bank needs to “closely monitor the transmission in the near future to assess the convenience of further loosening policy,” he said.
Colombia has cut its policy rate 2 percentage points since June, to 3.25 percent, the lowest rate among major Latin American economies. Gross domestic product expanded 3.1 percent in the fourth quarter from a year earlier, the slowest growth in the Andean region.
Annual inflation eased to 1.83 percent last month, the lowest rate since 1955, which is outside the central bank’s 2 percent to 4 percent target range. Colombia and Chile are Latin America’s only major economies with below-target inflation.
In a separate speech posted by the central bank yesterday, dated March 17, Uribe said Colombia will step up its accumulation of international reserves, “to counter a higher probability of misalignment of the exchange rate, help curb the risks of the recent slowdown of the global economy, and aid the current Colombian expansionary monetary policy.”