In a decisive move to stimulate economic growth, Colombia’s central bank reduced its benchmark interest rate by 50 basis points to 11.25% on Friday. This marks the bank’s fifth rate cut since December, aligning with predictions from recent Reuters and Bloomberg surveys, which had unanimously anticipated this reduction.
The decision, supported by four of the six voting members of the bank’s seven-member board, reflects the bank’s strategy to balance economic stimulation with inflation control. Two members had advocated for a more substantial cut of 75 basis points, while one member was absent from the meeting due to justified reasons.
Governor Leonardo Villar, addressing the media, emphasized that the rate cut aims to bolster economic growth while keeping inflation in check. “The risk premiums for the country and the exchange rate of the peso against the dollar have increased, in a context in which international financial conditions remain restrictive,” Villar noted. Despite these cuts, the benchmark rate remains higher than the inflation rate, which stood at 7.16% for the 12 months ending May 31, still above the bank’s long-term target of 3%.
The cumulative reductions have brought the central bank’s benchmark rate down by a total of 200 basis points. The bank’s cautious approach has been consistent, even as external pressures mount. President Gustavo Petro, Finance Minister Ricardo Bonilla, and significant private banking entities like Grupo Aval SA and Bancolombia SA have all urged for faster monetary easing to revive the sluggish economy. However, the central bank maintains that a measured approach is essential to ensure that inflation targets are met by mid-2025.
Colombia currently holds the highest benchmark interest rate among major inflation-targeting economies in the Americas, despite the recent cuts. This rate remains above those of other Latin American nations such as Mexico, Brazil, and Peru, which have kept their rates steady in response to growing inflationary pressures.
The bank forecasts modest economic growth of 1.4% for this year, with an anticipated increase to 3.2% by 2025. Analysts suggest that the central bank might expedite rate cuts to 75 basis points in September to further support economic recovery.
As Colombia navigates these complex economic challenges, the central bank’s decisions will play a crucial role in shaping the country’s financial stability and growth trajectory.
