Colombia’s half-point interest rate reduction in March may be the last, said finance minister Mauricio Cardenas Monday.
According to Cardenas the country, which now has the lowest rates in Latin America, “has now arrived at the limit of how much the central bank can cut its interest rates.”
The minister said “the central bank has played its final cards” regarding the rate, which has been reduced by 2 percentage points since June 2012.
MORE: Colombia bond yield drops after ‘surprise’ interest rate cut
“You can never say never on this subject,” said the minister. “But we can say that with this measure the central bank is taking what could be the last stimulus on the monetary side… to end the cycle of interest rate cuts.”
The huge reduction 10 days ago came on the heels of two quarter-point cuts in January and February.
According to Banco de la Republica, weak growth and below target inflation prompted the massive cut, which it is hoped will buoy growth and facilitate a move away from a strong currency.
The bank said that monetary stimulus was reaching the economy at a slower pace than desired.
The reductions should lower mortgage rates, as the government is pushing the financial sector to pass the cuts on in line with the central bank, making it “a good time to buy houses,” according to Cardenas.
The yield on peso bonds due in 2024 has fallen 76 basis points to 4.9% so far in 2013 amid speculation the central bank would reduce borrowing costs further, according to Bloomberg. The peso has weakened 3% against the dollar during this time to 1821.78.
Cardenas said he expects the peso to depreciate further. “I believe we will get to approxiamtely 1,900 per dollar, and I hope we get there quickly,” said the minister.
Sources:
- entrevista con el ministro de hacienda Mauricio Cardenas (RCN Radio)
- Colombia’s March rate cut may have been the last Cardenas says (Bloomberg)
