Colombia’s central, the Banco de la Republica, has just cut its overnight lending rates to a record low 3%. The reduction surprised all 31 analysts surveyed by Bloomberg, who had estimated the rate would remain at 3.5%.
Central Bank President Jose Dario Uribesaid that while the economy is “recovering faster than expected,” the decision was based on lower expectations of inflation.
The government expects the economy to expand 2.5% in 2010, after a mere 0.4% growth in 2009. Economists predict inflation this year will be 3.3%, according to the median forecast in a central bank survey published last month.
This rate is well within the Central Bank’s 2% to 4% target for the year.
The rate cut can be expected to lead to some fall in the Peso, and push the revival of the housing market. The peso has risen 16.2% in the past 12 months, making it the third-best performer among major emerging-market currencies.
However, the currency has slid 3.9% to 1.97 per dollar since March 3, when policy makers announced they would buy $20 million a day in the foreign-exchange market until the mid-year, to curb a rally they say left the peso “misaligned.” Some believe that a major reason for the Central Bank’s rate cut is to correct a perceived currency overvaluation.