Colombia's central bank cut its benchmark interest rate by 25 basis points to 13% on Tuesday, its first cut in more than three years, as policymakers sought to shore up the faltering economy despite continued inflation pressures on some sectors.
The decision was supported by five policymakers, while two voted in favor of maintaining borrowing costs. This reduction represents the first price cut since September 2020.
The bank also lowered its growth forecast for 2023 to 1%, down from the previous estimate of 1.2%.
The council said in a statement that although fuel and energy prices continued to rise, “inflation continued the downward path it had maintained over the past eight months and reached 10.15% in November.”
The November figure is still well above the bank's long-term target of 3%.
The statement added that food prices witnessed significant declines, and that inflation expectations for the coming year are mixed.
The council said that economic growth is suffering.
“What is important is the message in a scenario where there is a clear economic slowdown and we still have worrying symptoms,” said Finance Minister Ricardo Bonilla, who represents the government on the board.
The meeting comes a day after the statistics agency announced that gross domestic product contracted by 0.41% year-on-year in October, the third consecutive monthly contraction, and amid uncertainty about how much the monthly minimum wage will increase for 2024.
“Economic activity continues to slow,” said Chairman Leonardo Villar.
Analysts said that fuel prices and the rise in the minimum wage may affect the level of inflation next year.
The statement added, "The Board of Directors calls for caution in amending the minimum wage, so that its increase does not significantly exceed the annual variation of the consumer price index in 2023."
Unions and business groups, accompanied by the Ministry of Labor, are still discussing the increase.
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