ABC Finance

Colombia’s central bank lowered its benchmark rate by a full percentage point as it seeks to revive growth in South America’s fourth-biggest economy.

Policy makers led by bank chief Jose Dario Uribe voted unanimously to cut the overnight rate to 7 percent, the lowest since 2006. The move matched 19 of 33 forecasts in a Bloomberg survey of economists; the others expected smaller reductions.

“The credit crisis has led to a strong drop in global trade and a decline in internal demand because of the loss of consumer and producer confidence,” Uribe told reporters in Bogota. “Colombia hasn’t been an exception to that.”

Latin America’s fifth-biggest economy may have expanded at the slowest pace in almost seven years in the fourth quarter of 2008, according to economists surveyed by Bloomberg, while annual inflation has slowed for four consecutive months after reaching the fastest pace since 2002.

“We have maintained all along that rate cuts would be frontloaded to achieve as much stimulus as possible,” said Boris Segura, an economist at Morgan Stanley in New York. “This confirms our call.”

After half-point cuts in December and January, the board last month slashed the overnight rate by a full point, the biggest reduction in almost seven years.

Colombia’s central bank last cut rates at four straight meetings in 2002, when policy makers sought to avert a recession and cut a double-digit unemployment rate.

‘Under Control’

Uribe has said the time is right to lower rates. Industrial production has declined for six straight months while retail sales have fallen for five months, prompting the central bank to say economic growth in 2009 could slow to 1 percent to 2 percent, down from its original 5 percent estimate.

“The main concern now is how to push the economy because inflation expectations are under control,” Finance Minister Oscar Ivan Zuluaga said yesterday in an interview cash advance payday loan. “The external signs of the world economy and the local signs of economic growth are very low.”

Since President Alvaro Uribe took office in 2002, increased bank lending has fueled an expansion of consumer spending that helped accelerate economic growth to 7.5 percent in 2007, the fastest pace in almost three decades.

The bank pushed up borrowing costs to a seven-year high of 10 percent in 2008, which helped check inflation. Now, the global credit crisis has begun to stifle Colombia’s growth, as exports to the U.S. and neighboring Venezuela slow.

Zuluaga said the economy will expand this year. Still, in April the government will probably revise its estimate for 3 percent economic growth after analyzing data that comes out next week, he said.

The April revision its gross domestic product estimates likely will be the final change in growth numbers, Zuluaga said.

Coffee production, which fell 25 percent in the last quarter, will have an impact on 2008 GDP growth, he said today.

Peso Rally

“The central bank will cut rates further during 2009 irrespective of the shape of the world or domestic economy and the level of risk aversion,” said Alberto Bernal, head of fixed-income research at Bulltick Securities Inc., who expects the bank to cut the rate to 5.5 percent by year-end.

Output fell 10.7 percent in January while retail sales tumbled 4.5 percent, the biggest decline since the National Statistics Office began the series in January 2000.

Consumer price increases slowed to an annual rate of 6.5 in February, down from a peak of 7.9 percent in October. The central bank is targeting an annual inflation rate of 4.5 percent to 5.5 percent this year.

Source

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