Colombia cuts key rate to 9.75% as fiscal risks spook market

Colombia’s central bank ignored pressure to accelerate the pace of interest rate cuts as policymakers weigh financial risks that have driven the peso to its lowest level in more than a year.

The seven-member council voted 4-3 to cut the base rate by half a percentage point to 9.75%, Gov. Leonardo Villar told reporters in Bogota on Thursday. A minority voted for a larger reduction to 9.5%.

“Today’s interest rate cuts continue to support economic growth and maintain necessary caution given ongoing inflation risks,” Villar said, reading from the bank’s statement.

Twenty-one of 28 economists surveyed by Bloomberg predicted the move, while the rest expected a larger cut of three-quarters of a percentage point.

The bank also raised its economic growth forecast for this year to 1.9% from 1.8%. Output is projected to grow 2.9% in 2025, up from a previous estimate of 2.7%, the bank said.

President Gustavo Petro, Finance Minister Ricardo Bonilla and private bankers have repeatedly called for faster policy easing to revive economic growth. But most members of the bank’s board have so far refused, fearing that inflation might not return to its target level quickly enough.

A constitutional reform bill in Congress that would increase Treasury transfers to regional governments has spooked investors, deepening concerns about an already huge budget deficit. The bill’s approval in the Senate helped the currency fall 4.9% this month, to its lowest level in 17 months.

Although annual inflation has slowed to 5.8% from last year’s peak of 13%, it is still above the central bank’s target of 3%. Economists surveyed by the central bank forecast price growth to slow to 3.8% by the end of next year.

Elsewhere in the region, central banks in Mexico, Chile and Peru cut interest rates at recent meetings, and a rebound in inflation has forced Brazil to raise borrowing costs.

This article was created from an automated news agency feed without modifications to the text.