Colombia to Cut Rates With Easing End Near: Decision Day Guide
Colombia to Cut Rates With Easing End Near: Decision Day Guide
(Bloomberg) -- Colombia will likely cut its interest rate for a fifth straight time to a record low as policy makers near the end of an easing cycle aimed at blunting the economic shock from the coronavirus pandemic.
The central bank, led by its Governor Juan Jose Echavarria, will lower borrowing costs by a quarter point to 2.25% on Friday, according to all but one of the 26 economists in a Bloomberg survey. The monetary authority has reduced rates from 4.25% at the start of the year.
Policy makers are pumping stimulus into an economy battered by a recent jump in coronavirus cases. While some industries have been allowed to reopen, the capital city of Bogota, which accounts for a quarter of the nation’s gross domestic product, has re-imposed lockdowns. Factors including a weak labor market and consumer confidence levels may also mean further easing ahead.
“Given the deterioration of the economy, the bank would continue with a moderate pace of adjustment,” said Carolina Monzon, an economist at Itau Corpbanca Colombia. “Downside risks for the key rate remain.”
The bank’s decision will be made during a press conference at 1:00 p.m. local time in Bogota, and a statement will be published at the same time. Both economists surveyed by the central bank and interest-rate swap traders are expecting at least one more reduction following Friday’s meeting.
What Our Economist Says
”Data released since the June meeting adds evidence of weak domestic demand, increasing unemployment and falling inflation. It supports expectations for the central bank to cut interest rates by 25 basis points to 2.25% on Friday and points to policy makers keeping the door open for more depending on new information.”
--Felipe Hernandez, Latin America economist, Bloomberg Economics
World’s Worst
Colombia’s rolling 7-day average of virus cases is currently one of the world’s worst, at 8,000, according to the European Centre for Disease Prevention and Control. That’s driving up the Andean country’s total number of infections, which stands at roughly 280,000.
Amid the outbreak, Colombia’s urban unemployment rate jumped to 24.9% in June, while annual inflation is running almost a full percentage point below the 3% target. The government forecasts gross domestic product will contract 5.5% this year.
Officials are forecasting a subsequent growth rebound of 6.6% in 2021 in an outlook described as overly optimistic by many private sector analysts.
As part of their response to the pandemic, lawmakers will study a plan that would allow workers to tap their pensions savings. Still, President Ivan Duque said last month that he opposes such a plan.
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