Colombia’s central bank unexpectedly accelerated the pace of interest rate cuts, citing weak growth, below-target inflation and the slow transmission of previous stimulus.
Banco de la Republica cut its benchmark rate by a half point to 3.25 percent, surprising all 32 analysts surveyed by Bloomberg.
Twenty-seven analysts forecast a quarter point cut while five expected no change. The bank cut the overnight rate by a quarter point at each of its last four meetings.
“The Colombian economy is growing below its potential and will probably be below potential in the coming quarters, while inflation and inflation expectations are below the 3 percent target,” central bank Governor Jose Dario Uribe said in a statement after the decision.
“This is in a context in which interest rate cuts seem to be transmitted to the economy slower than desired.”
Policy makers have cut borrowing costs by 2 percentage points since June, the most among emerging markets, as growth cooled and inflation slowed to a six-decade low.
President Juan Manuel Santos’s government is trying to pressure banks to cut rates on mortgages and consumer loans, which haven’t yet fallen in line with the policy rate.
“No one imagined this,” Camilo Perez, head analyst at Banco de Bogota, said in a telephone interview. “They are trying to get a bigger adjustment in interest rates.
That it was unanimous sends a very strong signal that it’s the board as a whole that’s seeing risks to growth.”
‘Pushing’ Banks
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.
The gap has widened from 6.2 percentage points in June, when policy makers began cutting interest rates and compares with an average of 5.9 percentage points over the past decade.
The average annual interest rate on commercial loans fell to 9.4 percent in January, from 10 percent in June, while the interest rate on consumer loans rose to 19.2 percent from 19.1 percent.
Finance Minister Mauricio Cardenas, who chairs the bank’s policy committee, said the government is “pushing” banks to cut their lending rates. Annual inflation eased to a six-decade low of 1.83 percent last month, the slowest pace since 1955, and outside the central bank’s 2 percent to 4 percent target range.
‘Pessimistic Statement’
Colombia and Chile are Latin America’s only major economies with below-target inflation.
Uribe and Cardenas both told reporters today they want inflation back at the 3 percent midpoint of the target range. Gross domestic product expanded 3.1 percent in the fourth quarter from a year earlier, slower than growth in Chile, Peru and Mexico, though faster than Brazil’s.
Industrial production fell 1.7 percent in January from a year earlier, the national statistics agency said today, its third straight contraction, and lower than the median forecast of a 0.7 percent decline in a Bloomberg survey.
Retail sales expanded 1.3 percent in January, compared to a 2.9 percent median forecast in a Bloomberg survey. The central bank’s outlook is “very pessimistic” said Camila Estrada, head analyst at Helm Bank SA (PFBHELMB) in Bogota.
“This shows that the outlook they see this year remains doubtful with a lot of risks.” Estrada forecasts that the bank will hold the rate until the end of the year.
Coal Dispute
GDP will rise 2.5 percent to 4.5 percent this year, according to the central bank’s forecast.
Cardenas said in a radio interview yesterday that first quarter growth has been hit by a strike and a loading ban that paralyzed the country’s coal industry. Workers at Cerrejon, Colombia’s biggest coal mine, ended a 32-day strike on March 11.
Colombia’s second-largest coal producer, Drummond Inc., had its loading license suspended Feb. 6 after it dumped coal into the Caribbean. Coal is Colombia’s biggest export after oil.
Today’s policy meeting was the first for newly-appointed co-directors Ana Fernanda Maiguashca and Adolfo Meisel, after Fernando Tenjo and Juan Jose Echavarria left the bank in January.
Yields on the government’s 10 percent peso debt due in 2024 fell 9 basis points, to 5.11 percent. The peso has weakened 3.4 percent this year as the government and central bank announced increased dollar purchases to stem a rally that sent the peso to a 17-month intraday high on Jan. 2.
Cardenas said yesterday that the central bank could buy as much as $10 billion this year, from $4.8 billion in 2012. In trading today, the currency weakened 0.5 percent to 1828.40 per U.S. dollar.
In Brazil, President Dilma Rousseff’s government last year ordered state-owned banks Caixa Economica Federal and Banco do Brasil to cut loan rates to pressure private lenders to reduce “unacceptable” spreads.
bloomberg.com
Banco de la Republica cut its benchmark rate by a half point to 3.25 percent, surprising all 32 analysts surveyed by Bloomberg.
Twenty-seven analysts forecast a quarter point cut while five expected no change. The bank cut the overnight rate by a quarter point at each of its last four meetings.
“The Colombian economy is growing below its potential and will probably be below potential in the coming quarters, while inflation and inflation expectations are below the 3 percent target,” central bank Governor Jose Dario Uribe said in a statement after the decision.
“This is in a context in which interest rate cuts seem to be transmitted to the economy slower than desired.”
Policy makers have cut borrowing costs by 2 percentage points since June, the most among emerging markets, as growth cooled and inflation slowed to a six-decade low.
President Juan Manuel Santos’s government is trying to pressure banks to cut rates on mortgages and consumer loans, which haven’t yet fallen in line with the policy rate.
“No one imagined this,” Camilo Perez, head analyst at Banco de Bogota, said in a telephone interview. “They are trying to get a bigger adjustment in interest rates.
That it was unanimous sends a very strong signal that it’s the board as a whole that’s seeing risks to growth.”
‘Pushing’ Banks
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.
The gap has widened from 6.2 percentage points in June, when policy makers began cutting interest rates and compares with an average of 5.9 percentage points over the past decade.
The average annual interest rate on commercial loans fell to 9.4 percent in January, from 10 percent in June, while the interest rate on consumer loans rose to 19.2 percent from 19.1 percent.
Finance Minister Mauricio Cardenas, who chairs the bank’s policy committee, said the government is “pushing” banks to cut their lending rates. Annual inflation eased to a six-decade low of 1.83 percent last month, the slowest pace since 1955, and outside the central bank’s 2 percent to 4 percent target range.
‘Pessimistic Statement’
Colombia and Chile are Latin America’s only major economies with below-target inflation.
Uribe and Cardenas both told reporters today they want inflation back at the 3 percent midpoint of the target range. Gross domestic product expanded 3.1 percent in the fourth quarter from a year earlier, slower than growth in Chile, Peru and Mexico, though faster than Brazil’s.
Industrial production fell 1.7 percent in January from a year earlier, the national statistics agency said today, its third straight contraction, and lower than the median forecast of a 0.7 percent decline in a Bloomberg survey.
Retail sales expanded 1.3 percent in January, compared to a 2.9 percent median forecast in a Bloomberg survey. The central bank’s outlook is “very pessimistic” said Camila Estrada, head analyst at Helm Bank SA (PFBHELMB) in Bogota.
“This shows that the outlook they see this year remains doubtful with a lot of risks.” Estrada forecasts that the bank will hold the rate until the end of the year.
Coal Dispute
GDP will rise 2.5 percent to 4.5 percent this year, according to the central bank’s forecast.
Cardenas said in a radio interview yesterday that first quarter growth has been hit by a strike and a loading ban that paralyzed the country’s coal industry. Workers at Cerrejon, Colombia’s biggest coal mine, ended a 32-day strike on March 11.
Colombia’s second-largest coal producer, Drummond Inc., had its loading license suspended Feb. 6 after it dumped coal into the Caribbean. Coal is Colombia’s biggest export after oil.
Today’s policy meeting was the first for newly-appointed co-directors Ana Fernanda Maiguashca and Adolfo Meisel, after Fernando Tenjo and Juan Jose Echavarria left the bank in January.
Yields on the government’s 10 percent peso debt due in 2024 fell 9 basis points, to 5.11 percent. The peso has weakened 3.4 percent this year as the government and central bank announced increased dollar purchases to stem a rally that sent the peso to a 17-month intraday high on Jan. 2.
Cardenas said yesterday that the central bank could buy as much as $10 billion this year, from $4.8 billion in 2012. In trading today, the currency weakened 0.5 percent to 1828.40 per U.S. dollar.
In Brazil, President Dilma Rousseff’s government last year ordered state-owned banks Caixa Economica Federal and Banco do Brasil to cut loan rates to pressure private lenders to reduce “unacceptable” spreads.
bloomberg.com
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