Colombia should take care not to cut rate of interest too quick and after that run the risk of needing to reverse course, according to the country’s leading main lender.
(Bloomberg)– Colombia should beware not to cut rate of interest too quickly and after that run the risk of needing to reverse course, according to the country’s leading main lender.
Constantly high inflation rates have actually injured the bank’s reliability, while the El Nino weather condition phenomenon might stir food and energy cost increases, guv Leonardo Villar stated in a banking conference in Cartagena.
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“The threat of a bolder decrease in the rates of interest in the really short-term is that it might increase the possibility of needing to decrease or perhaps reverse the procedure of unwinding financial policy later on, if surprise occasions take place,” he stated.
Traders are divided over whether the bank will speed up the speed of rates of interest cuts at its next conference in March. It cut its benchmark rate simply a quarter portion point at its last conference, to 12.75%.
A minority of the board required a larger cut, of half a portion point, to restore weak development.
Colombian inflation slowed last month to a two-year low of 8.4%, however that’s still nearly 3 times its 3% target and faster than the rate in Brazil, Mexico, Peru and Chile. Colombian core inflation, which leaves out unpredictable costs, is 9.7%
Learn more: Colombian Inflation Rate Slows to Two-Year Low of 8.35%
Villar stated that a velocity in rate of interest cuts will depend “seriously” on inflation continuing to slow to a course constant with the target in the reasonably short-term, and the dissipation of unpredictability in shocks such as the effects of El Nino and current increase in the base pay.
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