Colombia Central Bank Warns of Slowing Global Growth Threat

Colombia’s central bank voted unanimously to cut the benchmark interest rate on Aug. 24 as the weakening global economy damped export demand, according to the minutes of the meeting released today.

The central bank reduced borrowing costs by a quarter point for a second straight month as inflation close to the target rate gives policy makers leeway to bolster economic activity and employment. The bank cut the overnight rate to 4.75 percent after reducing rates in July for the first time since 2010.

“Problems in Europe will probably continue to be transmitted to other economies,” the bank said. “This heightens the likelihood of an even weaker global growth in the future. The weakening of the global economy affects the growth of the Colombian economy through several channels.”

The central bank July 31 cut its forecast for 2012 growth to a range of 3 percent to 5 percent, from 4 percent to 6 percent, and predicted expansion of 2 percent to 5 percent next year. Policy makers maintained their 2012 forecast in today’s minutes, while saying that growth slowed in the second quarter and that indicators in the third quarter are giving “mixed results.”

While Colombia’s annual inflation rate accelerated to 3.11 percent last month from 3.03 percent in July, it’s down from 3.73 percent at the start of the year. The central bank targets inflation of 3 percent, plus or minus one percentage point. Consumer prices rose 0.04 percent last month, in line with economists’ estimates.

After last month’s meeting, the bank said it will buy $700 million by the end of September to help stem a rally in the country’s currency.

Colombia’s peso has gained 6.2 percent this year, the biggest gain of the world’s 31 most-traded currencies tracked by Bloomberg after the Hungarian forint and the Chilean peso, on the strength of sustained foreign investment into the Andean nation’s oil and mining projects.


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