Colombia Cuts Key Interest Rate to a Two-Year Low of 10.25%

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(Bloomberg) -- Colombia’s central bank cut borrowing costs to a two-year low while ignoring President Gustavo Petro’s calls for an even bigger reduction. The board also elected Governor Leonardo Villar for a second four-year term.

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The board split once more as it lowered its benchmark rate by half a percentage point to 10.25%, Villar told reporters on Monday. The move was correctly forecast by 20 of 27 economists in a Bloomberg survey, while the others expected a deeper cut, to 10%.

Four of the seven-member board backed the decision, while three argued for a reduction of three quarters of a percentage point.

“Today’s decision will continue to support the recovery of economic growth and maintains the necessary prudence given the risks that remain over the behavior of inflation,” the bank said in its policy statement.

President Petro and Finance Minister Ricardo Bonilla have repeatedly called for more interest rate reductions to revive the weak economy. However, a majority of policymakers have rejected these calls for fear that inflation wouldn’t slow fast enough.

Annual consumer price rises have slowed by more than half from their post-pandemic peak, to 6.1%, but that’s still more than double the 3% target.

Earlier this month, the case for a faster monetary easing seemed stronger, especially after the Federal Reserve’s half-point interest rate cut. However, the government’s failure to pass its 2025 budget in congress has sparked renewed concern about the nation’s fiscal outlook.

Brazil’s Mistakes

One board member, Mauricio Villamizar, last month warned against repeating the mistakes of Brazil’s central bank, which slashed interest rates too fast and was then forced to reverse course and start raising them again.

The economic activity index, a proxy for GDP, expanded 3.7% in July from a year earlier, more than economists surveyed by Bloomberg estimated.

In the region, Mexico, Chile, and Peru cut interest rates by a cautious quarter percentage point over the past month, while Brazil started to tighten policy amid mounting inflationary pressure.