(Bloomberg) -- Colombia’s central bank ignored pressure to accelerate the pace of interest rate cuts as policymakers weigh fiscal risks that sent the peso to its weakest level in more than a year.
The seven-member board voted 4-3 to lower the benchmark rate by half a percentage point to 9.75%, Governor Leonardo Villar told reporters in Bogota on Thursday. The minority voted for a bigger reduction, to 9.5%.
“Today’s interest rate cut continues to support economic growth and maintains the necessary prudence given the inflation risks that remain,” Villar said, reading 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 lifted its economic growth forecast for this year to 1.9%, from 1.8%. In 2025, output will expand 2.9%, 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 easing to revive economic growth. But the majority of the bank’s board has so far refused, due to their concern that inflation might not return to its target fast enough.
A constitutional reform bill in congress that would increase transfers from the treasury to regional governments spooked investors, exacerbating fears over the already-wide fiscal deficit. The bill’s approval in the senate contributed to 4.9% fall in the currency this month, to its weakest level in 17 months.
In its statement, the bank said that this law “could compromise the stability of public finances”, and said that dispelling these doubts was indispensible to calm markets.
While annual inflation has slowed to 5.8% from last year’s peak of 13%, it still exceeds the central bank’s 3% target. Economists surveyed by the central bank forecast price rises will slow to 3.8% by the end of next year.
Elsewhere in the region, central banks in Mexico, Chile and Peru have cut interest rates at recent meetings, while a rebound in inflation led Brazil to lift borrowing costs.
(Adds bank’s comment in eighth paragraph on bill to boost payments to Colombian regions)
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