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Colombia Cuts Interest Rate to 10.75% in a Split Decision

(National statistics agency, cent)

(Bloomberg) -- Colombia’s central bank cut interest rates by half a percentage in a split decision after a jump in inflation weakened the case for faster monetary easing. 

Five of the seven board members voted for the move, which lowered the policy rate to 10.75%, bank Governor Leonardo Villar told reporters after the meeting. The other two argued for a deeper cut of three quarters of a percentage point. 

“Today’s decision gives a new boost to the recovery of economic growth, and maintains the required prudence, given the risks that remain about the behavior of inflation,” the bank said in its statement. 

The move was forecast by 27 of 28 economists surveyed by Bloomberg, while one expected a bigger recuction. 

The decision takes the key rate below Mexico’s, meaning that Colombia no longer has the highest borrowing costs among Latin America’s major inflation-targeting economies.

President Gustavo Petro has urged the central bank to speed up monetary easing to boost Colombia’s weak growth. However, the bank has repeatedly defied outside pressure, arguing that a cautious approach is warranted to ensure that inflation slows to its target range next year. 

Annual inflation accelerated to 7.18% in June, its first increase in 15 months. Colombia targets yearly consumer price rises of 3%, plus or minus one percentage point.

The bank’s case for caution has been bolstered by economic activity, which expanded 2.5% in May from a year earlier, more than double the forecasts of economists surveyed by Bloomberg. The national statistics agency publishes gross domestic growth data next week.

Chile is forecast to cut is key rate to 5.5% while Brazil is predicted to leave its rate unchanged at 10.5% in decisions to be announced later on Wednesday. 

--With assistance from Robert Jameson.

(Adds comment from bank in third paragraph.)

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