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Colombia’s March Rate Cut May Have Been the Last, Cardenas Says

Colombia’s surprise half point interest rate reduction in March may bring to an end a cutting cycle that began in July, Finance Minister Mauricio Cardenas said.

“We are getting close to the end of what the central bank can do in terms of cutting its interest rates,” Cardenas said today in an interview on RCN Radio. “You can never say never on this subject, but we can say that with this measure, the central bank is taking what could be a final stimulus measure on the monetary policy side.”

The central bank unexpectedly accelerated the pace of interest rate cuts at its March 22 policy meeting with the first half-point cut in almost three years, saying that monetary stimulus is reaching the economy at a slower pace than it wants. Colombia has reduced its benchmark rate 2 percentage points since June, to 3.25 percent, the lowest rate among major Latin American economies.

Colombians can expect “good news” on mortgage rates this week, making it a good time to buy real estate in the Andean nation, Cardenas said. The government is continuing to push the financial sector to cuts lending rates in line with the central bank, he said.

The average rate for new mortgages, excluding subsidized housing, fell to 12.4 percent in February from 13.1 percent eight months earlier, half as much as the decline in the benchmark rate. Average mortgage rates rose to 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.

Weaker Peso

The yield on peso bonds due 2024 has fallen 76 basis points to 4.90 percent this year. The peso has weakened 3 percent against the dollar over the same period, to 1821.78 per U.S. dollar. Cardenas said he expects the peso to depreciate further.

“I believe we are going to about a 1,900 per dollar, and I hope we get there quickly,” he said.

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 and 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.

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