July 31, 2020 / 6:59 PM / 11 days ago

UPDATE 1-Colombia's central bank cuts key lending rate by 25 basis points to 2.25%

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BOGOTA, July 31 (Reuters) - Colombia’s central bank board unanimously cut the benchmark interest rate to 2.25% on Friday and announced sharper economic contraction estimates as a coronavirus lockdown and low oil prices continue to batter the country’s economy.

The move takes total cuts to 200 basis points since the reduction cycle started in March, as the bank tries to ease borrowing cost burdens amid spiking unemployment.

The bank’s technical team has revised its gross domestic product contraction estimate for this year to between 6% and 10%, down from a previous range of 2% to 7%, board chief Juan Jose Echavarria told a virtual press briefing.

Consumer price growth will be between 1% and 2%, the technical team now estimates, well below the long-term target rate of 3% and also below a previous inflation estimate of between 1% and 3%.

“The observed aggregate demand is weaker than expected, with greater excesses of productive capacity and a sharp deterioration in the labor market, in a context of great global macroeconomic uncertainty,” the board said in a statement on the interest rate decision.

“Under these conditions, the balance of monetary policy risks suggests it is convenient to provide an additional boost to the economy,” the statement said. “The impact of monetary policy will be greater as the conditions of the pandemic allow the gradual reopening of the different sectors to continue.”

A Reuters poll last week anticipated the board would cut the rate by a quarter point.

Analysts predict the board will continue lowering borrowing costs during the rest of 2020, taking advantage of low inflation pressures.

The bank will renew maturities of future contracts for the sale of dollars in August, the board said in a separate statement.

Previously the board said it would offer forward auctions in dollars during July, as well as public debt repos, as part of liquidity measures. (Reporting by Julia Symmes Cobb, Oliver Griffin and Carlos Vargas; Editing by Chris Reese and Andrea Ricci)

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