Identifier
Created
Classification
Origin
09BOGOTA1780
2009-06-03 15:54:00
UNCLASSIFIED
Embassy Bogota
Cable title:
CENTRAL BANK SLASHES RATES FURTHER, HINTS AT
how-toVZCZCXYZ0023 RR RUEHWEB DE RUEHBO #1780 1541554 ZNR UUUUU ZZH R 031554Z JUN 09 ZDK FM AMEMBASSY BOGOTA TO RUEHC/SECSTATE WASHDC 9015 INFO RUEHBR/AMEMBASSY BRASILIA 8938 RUEHCV/AMEMBASSY CARACAS 2302 RUEHLP/AMEMBASSY LA PAZ JUN LIMA 7607 RUEHZP/AMEMBASSY PANAMA 3699 RUEHQT/AMEMBASSY QUITO 8306 RUEATRS/DEPT OF TREASURY WASHDC RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS BOGOTA 001780
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN CO
SUBJECT: CENTRAL BANK SLASHES RATES FURTHER, HINTS AT
WANING EXPANSIONARY POLICIES
UNCLAS BOGOTA 001780
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN CO
SUBJECT: CENTRAL BANK SLASHES RATES FURTHER, HINTS AT
WANING EXPANSIONARY POLICIES
1. (U) On May 29th the board of Colombia's central bank
announced it would cut key interest rates 100 basis points to
5 percent in the wake of reports of falling consumer demand
and industrial production. The drop is the sixth cut in rates
since December of last year (500 basis points total) and
leaves the key rate at its lowest since 1998. The board also
announced that this change would be the final 100 basis point
cut, with any future cuts being between 25 and 75 basis
points, thus marking a slowing of its expansionary policies
as the Colombian and U.S. economies cautiously recover.
Less concern about inflation, more about demand and production
-------------- --------------
2. (U) While the main concern for the Colombian economy a
year ago was rising inflation, the bank's focus has shifted
to a slowing economy. March's inflation rate of 5.73% (down
from 7.67% in 2008),coupled with grim macroeconomic data
from the fourth quarter of 2008 and the first quarter of 2009
sparked the loosening trend that began in December of 2008.
Colombia's economy contracted 0.7 percent in the fourth
quarter of 2009, and in the first quarter of this year,
industrial production fell by 7.5 percent and retail sales by
5.2 percent. After maintaining a tight monetary policy last
year, the slump in Colombia's economy and the expansion in
monetary policy over the last sixth months have allowed the
central bank to both temper inflation and stimulate growth.
Carlos Rojas of the National Association of Financial
Institutions (ANIF) told us ANIF believes the rate cut to be
an appropriate reaction to the current downturn. Highlighting
ANIF's stance that the central bank must play a key role in
countering effects of the business cycle, he said the size of
the cut (slightly larger than what ANIF had anticipated)
indicated the board was "on top of (its) game".
End of slashes, maybe just tweaks
--------------
3. (U) The central bank also announced that this cut would be
the last such cut, as they anticipate inflation falling to
the target rate of 5.5 percent over the coming months, and
Colombia's economy recovering in the second half of 2009.
The bank noted that future cuts would likely only amount to
25 to 75 basis points. Central bank chairman Jose Dario
Uribe noted in the press that commercial loans had responded
to the previous 5 cuts totaling 400 basis points. The
central bank's read is that this final cut will sufficiently
reduce the price of corporate lending to jump-start
production in time for recovery. While the board is keeping
its options open to future, smaller rate reductions, it
appears they believe the need for these 100 basis point cuts
is coming to an end.
Brownfield
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN CO
SUBJECT: CENTRAL BANK SLASHES RATES FURTHER, HINTS AT
WANING EXPANSIONARY POLICIES
1. (U) On May 29th the board of Colombia's central bank
announced it would cut key interest rates 100 basis points to
5 percent in the wake of reports of falling consumer demand
and industrial production. The drop is the sixth cut in rates
since December of last year (500 basis points total) and
leaves the key rate at its lowest since 1998. The board also
announced that this change would be the final 100 basis point
cut, with any future cuts being between 25 and 75 basis
points, thus marking a slowing of its expansionary policies
as the Colombian and U.S. economies cautiously recover.
Less concern about inflation, more about demand and production
-------------- --------------
2. (U) While the main concern for the Colombian economy a
year ago was rising inflation, the bank's focus has shifted
to a slowing economy. March's inflation rate of 5.73% (down
from 7.67% in 2008),coupled with grim macroeconomic data
from the fourth quarter of 2008 and the first quarter of 2009
sparked the loosening trend that began in December of 2008.
Colombia's economy contracted 0.7 percent in the fourth
quarter of 2009, and in the first quarter of this year,
industrial production fell by 7.5 percent and retail sales by
5.2 percent. After maintaining a tight monetary policy last
year, the slump in Colombia's economy and the expansion in
monetary policy over the last sixth months have allowed the
central bank to both temper inflation and stimulate growth.
Carlos Rojas of the National Association of Financial
Institutions (ANIF) told us ANIF believes the rate cut to be
an appropriate reaction to the current downturn. Highlighting
ANIF's stance that the central bank must play a key role in
countering effects of the business cycle, he said the size of
the cut (slightly larger than what ANIF had anticipated)
indicated the board was "on top of (its) game".
End of slashes, maybe just tweaks
--------------
3. (U) The central bank also announced that this cut would be
the last such cut, as they anticipate inflation falling to
the target rate of 5.5 percent over the coming months, and
Colombia's economy recovering in the second half of 2009.
The bank noted that future cuts would likely only amount to
25 to 75 basis points. Central bank chairman Jose Dario
Uribe noted in the press that commercial loans had responded
to the previous 5 cuts totaling 400 basis points. The
central bank's read is that this final cut will sufficiently
reduce the price of corporate lending to jump-start
production in time for recovery. While the board is keeping
its options open to future, smaller rate reductions, it
appears they believe the need for these 100 basis point cuts
is coming to an end.
Brownfield