- Central bank had raised rates at previous 11 board meetings
- Growth in 2Q was weaker than policy makers had forecast
Colombia brought a halt to a record series of interest rate increases on signs the economy is slowing faster then expected.
Six of the seven-member board voted to keep the key rate unchanged at 7.75 percent, the bank’s governor, Jose Dario Uribe, told reporters in Bogota Wednesday, while one voted to raise it to 8 percent. The decision was forecast by 25 of 36 analysts surveyed by Bloomberg with 11 predicting a quarter-point increase. The bank raised the rate 3.25 percentage points over its previous 11 meetings, the longest series of monthly increases since it adopted full-fledged inflation targeting in 1999.
“Economic activity has slowed faster than they expected,” said Camilo Perez, an economist at Banco de Bogota. “Inflation expectations have fallen, and this helps them to sleep soundly. The 6-1 majority confirms decisively that the cycle is over.”
Policy makers have pledged to get the fastest inflation in 16 years back into its target range by the end of next year, but are wary of triggering an “abrupt” slowdown in activity. The central bank’s next move will be to start cutting rates again in February next year, according to economists who took part in the bank’s latest monthly survey.
The national statistics agency reported this week that gross domestic product grew 2 percent in the second quarter from a year earlier, the slowest pace since 2009 and weaker than the central bank’s forecast of 2.6 percent.
“These figures, together with new data on economic activity in the third quarter, suggest a downward bias in the outlook for 2016 growth,” Uribe said.
As growth weakens, inflation has accelerated. Consumer prices leaped 8.97 percent in July from the year earlier, more that twice the upper limit of the 2 percent to 4 percent target range.
The surge in prices this year was caused by the El Nino weather phenomenon, which hit food supplies, and a fall in the peso that made imports more expensive. The central bank has repeatedly insisted that both are one-time effects whose impact will start to fade in the second half of this year. Colombia targets inflation of 3 percent, plus or minus one percentage point.
The decision to publish, for the first time, a break down of how board members voted was intended to increase transparency, Uribe said.