UPDATE 3-Colombia cuts interest rate for second straight month
* Decision was unanimous, made by consensus
* Cenbank to buy $700 mln to ease peso gains
* Peso is one of world's strongest gaining currencies
By Helen Murphy and Jack Kimball
BOGOTA, Aug 24 (Reuters) - Colombia's central bank lowered its benchmark interest rate on Friday for the second consecutive month in a widely expected move to bolster the economy as the global slowdown crimps overseas sales and weak sentiment slows consumer spending.
The seven-member board led by central bank chief Jose Dario Uribe voted to lower the overnight lending rate by 25 basis points to 4.75 percent following the bank's first rate cut since April 2010 last month.
"New information will enable future monetary policy actions, both concerning the development of events in the advanced countries and their impact on confidence, global demand and international prices of basic goods," the bank said in a statement following its decision.
The rate cut met forecasts of 28 of the 35 analysts polled by Reuters who highlighted Colombia's weakening of industrial output and retail sales in recent months.
Uribe said the the unanimous decision was made by consensus.
Other major regional economies like Mexico and Chile have held rates steady since early this year as they gauge fallout from the euro zone debt crisis. Brazil, on the other hand, has made a string of rate cuts since late 2011 to counter a sharp domestic slowdown in Latin America's largest economy.
In a move to help exporters, Colombia's central bank also said it would buy $700 million in the foreign exchange market during the rest of August and September in an effort to stem gains by the peso currency.
The peso has strengthened almost 7 percent this year, boosting costs for exporters that earn in dollars but pay costs in pesos.
Finance Minister Juan Carlos Echeverry, who resigned on Thursday, said that the government had separately purchased $700 million over the past two weeks, including $200 million by the state fund, known as FOGAFIN, to bolster efforts by the bank.
The government will continue to purchase dollars over the next 40 days, he said.
Echeverry, who will be replaced by current Energy Minister Mauricio Cardenas, has been increasingly vocal in recent weeks that the bank should play a bigger role in stemming the peso, one of the world's top gaining currencies.
Moderating domestic growth in the $330 billion economy has been exacerbated by the strong peso.
A military crackdown on drug-funded insurgent groups has made Colombia much more attractive to investors, once fearful of visiting the nation as Marxist FARC rebels and paramilitary groups bombed corporate installations and kidnapped workers.
Even as the economy slows, investor optimism may bring as much as $17 billion in foreign direct investment this year, Echeverry has said, putting more pressure on the peso.
After the $700 million the central bank said it would buy through September, it will continue with its program to buy at least $20 million daily on the spot market through November.
Echeverry has repeatedly called on the bank to buy at least $40 million a day.
Newly appointed Cardenas, an economist from the University of California at Berkeley, said late Thursday he is aware of the problems caused by he strong currency and would use "all necessary tools to fight it."
"Cardenas will take a more aggressive foreign exchange stance," said BNP Paribas analyst Nader Nazmi in a note to investors. "He does not see an appreciated peso as a sign of Colombia's strength, but considers it as a potential source of vulnerability to global forces."
Colombian banks will have one year to adopt stricter capital rules known as Basel III, Echeverry said on Friday, after announcing earlier that the government would issue a decree to strengthen the capital of the banking system.
Echeverry said the decree was to help "vaccinate" banks against excessive risk-taking.
WEAKENING GLOBAL GROWTH
The new interest rate level will help provide Colombians with more cash to spend on big-ticket items.
A better-than-expected reading for manufacturing in June may have led some board members to lean towards holding the rate steady, as a few analysts expected the bank would.
Discussion weighed heavily on the global financial climate at the policy meeting as inflation remains anchored near the mid-point of the bank's 2 percent to 4 percent target range for the year.
Uribe said measures of core inflation remained "relatively stable" and "inflation expectations declined across all maturities."
At its July policy meeting, the bank lowered its official estimate for 2012 gross domestic product growth to between 3 percent and 5 percent, but Uribe said last month that the bank expected growth of at least 4 percent.
Next year's economic growth is likely to be more uncertain, he has said, forecasting a growth of as low as 2 percent.
- Tweet this
- Share this
- Digg this