Colombia CPI, Peso May Pave Way to Rate Cut, Cardenas Says

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Colombia’s inflation will slow later this year and the current account deficit will shrink, potentially opening the door for interest rate cuts, according to Finance Minister Mauricio Cardenas.

The trends should take hold in the second half of the year and “will essentially create the space to be able to use monetary policy in a more countercyclical way,” Cardenas, who is president of the central bank’s board, said in an interview Monday at Bloomberg’s headquarters in New York.

Lower borrowing costs could help stimulate an economy that has been battered by a selloff in oil, the nation’s biggest export. The central bank has reduced its growth forecast twice this year and now predicts expansion of about 3.1 percent, which would be the lowest since 2009.

Recent gains in the peso will help narrow the current account gap, Cardenas said. The currency has strengthened 5.1 percent in the past month, the most in Latin America.

The central bank left the overnight lending rate at 4.5 percent for an eighth straight month in April after data showed consumer prices rising at the fastest pace in six years.

Colombia is open to strategies to attract more foreign investors in its domestic bond market, including allowing overseas settlement of the nation’s sovereign debt, Cardenas said. His comments come after neighboring Peru announced an agreement with Euroclear earlier this year.

“The idea of having our bonds Euroclearable is attractive,” Cardenas said. “The better the conditions for providing liquidity to our treasuries, it’s certainly appealing to us.”

Overseas Settlement

After cutting the tax on foreigners’ bond profits by more than half to 14 percent in 2013, Colombia isn’t considering tax changes in the short-term, he said.

Foreigners now hold about 16 percent of Colombia’s peso bonds, up from about 3 percent in 2012.

The government will likely cut its 2015 economic expansion forecast from the current 4.2 percent once first-quarter gross domestic product data is published, Cardenas said.

The Finance Ministry will announce its revised financing plan on June 15 along with the nation’s forecast on long-term oil prices, he said.

(Updates to add benchmark rate in fifth paragraph.)
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