By Central Bank News
Colombia’s central bank cut its benchmark interest rate by 25 basis points to 4.5 percent, a surprise to financial markets that had expected rates to be held steady, saying economic growth was slowing “slightly more than expected.”
Banco de la Republica Colombia has raised rates two times this year and cut rates three times with the intervention rate now 25 basis points below the level it started the year.
“After annual growth of 4.8 percent in the first half of 2012, recent indicators suggest that activity is moderating slightly more than expected,” the central bank said in a statement, adding that the weak global economy and decline in domestic demand was reflected in lower exports and industrial output.
Colombia’s Gross Domestic Product grew by 1.6 percent in the second quarter for an annual rate of 4.9 percent, up from 4.8 percent in the first but down from 6.1 percent in the fourth quarter.
The central bank said the range of forecast for this year are between 3.7-4.9 percent, with 4.3 percent the most likely.
The major risks to Colombia’s growth next year remains a “significant recession in Europe” and the uncertainty surrounding the U.S. fiscal issues.
“For 2013 external demand for Colombian products is expected to show moderate but sustained growth, stable international prices and ample liquidity,” the bank said, adding economic activity should be close to the country’s productive capacity.
Credit growth continues to slow, the bank said, adding inflation remains very close to the bank’s 3.0 percent midpoint target range.
In October Colombia’s inflation rate eased to 3.06 percent, down from 3.08 percent in September and 3.1 percent in August. A recent poll by the central bank showed that inflation this year is expected to end at 3.03 percent.
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