April 30, 2020 / 6:11 PM / a month ago

Colombia central bank set to cut rate by 50 basis points

BOGOTA (Reuters) - Colombia’s central bank board will likely cut its benchmark interest rate another half point at its April meeting on Thursday, ahead of an expected contraction in economic growth because of the novel coronavirus.

Twelve of 18 analysts in a Reuters survey last week said the seven-member board will cut borrowing costs to 3.25%, which would be the lowest rate in more than six years. The six other analysts in the poll predicted cuts of different amounts.

The board made a 50-basis-point cut to the rate in March, after holding it at 4.25% for nearly two years.

“We anticipate a new 50-basis-point cut, considering the strong fall in activity and the complicated external scenario,” said Itau analyst David Cubides.

“We think the central bank will have additional space to increase flexibility in monetary policy, taking the interest rate to 2.75% at the close of the year,” he said.

The government has drastically reduced its economic growth prediction and now expects a contraction of at least 1.6%, amid a semi-paralysis of the country’s economy during a nearly seven-week nationwide quarantine set to last until May 11.

The board may continue cuts in the interest rate, but it is not optimistic that lower borrowing costs will immediately help alleviate economic fallout from the coronavirus, chief Juan Jose Echavarria said last week.

The board has already taken a plethora of liquidity measures meant to help the country weather the effects of COVID-19, including reducing reserve requirements for banks by more than $2 billion.

The Colombian economy will require more measures, said Ernesto Revilla, head economist for Latin America at Citi.

“We are anticipating 50 additional basis points of cuts, which is very welcome and a necessary move to limit the size of the crash,” he said. “Unfortunately, monetary policy ... is not enough to alleviate the whole problem.”

“People aren’t stopping consumption or investing because the interest rate is high, but because they can’t go out on the streets.”

Reporting by Nelson Bocanegra; Writing by Julia Symmes Cobb; Editing by Jonathan Oatis

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