Colombia Central Bank Unexpectedly Cuts Rates

Colombia’s central bank unexpectedly cut interest rates Friday after leaving them on hold the previous two months, citing slower growth in the second half of this year and continued global uncertainty.

The bank’s seven-member board voted to reduce the main interest rate by 0.25 percentage point, to 4.5%. It was the first rate cut since August. Six economists surveyed by Dow Jones Newswires this week said they believed the bank would keep rates steady, at 4.75% for a third month.

Central Bank President José Dario Uribe told reporters the decision to reduce rate—which he said wasn’t unanimous—was taken because after 4.8% economic growth in the first six months of 2012, “recent indicators of activity suggest a moderation in growth that’s slightly more than expected.”

Mr. Uribe added: “The weakness in the world economy and the decline in domestic demand is being reflected in the reduced growth in exports and the contraction in industrial production.”

Industrial production contracted 1.3% in September versus that month of 2011, marking the second straight month of declines in that sector.

The bank said it sees Colombia’s oil-driven economy expanding about 4.3% this year. This follows a less-specific 2012 growth range forecast of 3.7% to 4.9% that the bank announced a month ago.

Finance Minister Mauricio Cardenas, who is also one of the voting members of the central bank, said the rate cut decision was also taken with eyes on boosting economic growth next year. He said the bank’s economic growth target for 2013 is 4.8%.

The bank also noted it felt it had the flexibility to cut rates since consumer inflation is well under control, which removes concerns that lower borrowing costs might cause a price spike.

Annual consumer inflation through October is just slightly above 3%, which is the bank’s mid-range of its 2% to 4% target for the end of 2012.

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