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Colombia’s central bank on Friday slashed its key interest rate by the most since 2013.

The overnight lending rate was cut by 0.5 percentage points to 6.5 per cent and market the third cut this year. Economists had forecast a smaller rate cut of 0.25 percentage points.

The move comes as leading economic indicators suggest that Latin America’s fourth-largest economy will continue to struggle in the near term and as inflation continues to slow.

The International Monetary Fund estimates the Andean country’s economy will expand 2.3 per cent this year, a tad faster than in 2016.

Despite the drop in inflation to an annual 4.69 per cent in March, the reading is above the bank’s target range. Notwithstanding, Rupert Stebbings, managing director of equities at Bancolombia in Medellín, explained in a note early on Friday why the Andean country’s central bank should accelerate the pace of cuts:

Inflationary risks have moderated. Thanks to the good performance of food, the consumer price index reading for March surprised downwards again. In addition, for the coming months we expect 12-month inflation to continue slowing down, which implies inflation expectations of analysts … have continued to adjust downwards.

Six out of the seven policymakers attended Friday’s meeting as respected economist José Antonio Ocampo will take up his post as the new board member in May.

Copyright The Financial Times Limited 2017. All rights reserved.
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