Will Colombia begin to cut its rates?: This says the Ministry of Finance

Colombia could potentially start easing monetary policy within three months as long as inflation moderates and the peso stabilizes around its current level, according to the country’s finance minister.

If the consumer price increases slowly according to expectations during the next six months, the Banco de la República could “easily” reduce its interest rate by two percentage points by the end of the year, said Finance Minister Ricardo Bonilla.

(Read more: Why it would be necessary to carry out a labor reform in the country).

“What is expected is that in this month the rates will stay put and we will carry out a follow-up process for the next two, three months to, towards the month of September, check if the rates can start to drop”the minister commented on Wednesday in an interview at the Bloomberg headquarters in New York.

Economists polled by Bloomberg forecast the central bank will end its steepest series of interest rate hikes at its June 30 policy meeting. Colombia is the last large, inflation-targeting economy in Latin America to halt monetary tighteningwhile some smaller economies, such as Uruguay and Costa Rica, have already begun to cut interest rates as growth slows in Latin America.

In Colombia, the finance minister is a voting member of the seven-member board of Banco de la República. Annual inflation reached its highest level in almost 25 years earlier this year, but Bonilla anticipates that it will slow to around 9% by the end of the year.

(See: How to make the best use of the June bonus).

The central bank’s fight against consumer price hikes has been given a boost by the peso, which has strengthened 17% this year, the most among major emerging markets. Bonilla said he expects the currency to stabilize near its current level at around 4,100 to 4,200 to the dollar.

On the other hand, Bonilla indicated that the Government will continue to gradually eliminate gasoline subsidies, which will probably slow down the convergence of inflation towards its 3% target. “Full tank” The government plans to sell about $1.5 billion in dollar bonds this year to pre-finance its 2024 budget, according to its financial plan published this month.

Speaking with Bonilla, the director of Public Credit, José Roberto Acosta, said that it makes sense to sell bonds this year since there is no guarantee that interest rates will go down in 2024, and it is better to have the “full tank” to face any contingency.

(More news: What explains the fall in the purchase of corporate bonds).

The context of the reforms has the market expectant.

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Economic growth will slow to 1.8% this year, from 7.3% last year, according to the Finance Ministry. The government plans to boost investment in public works and housing construction projects by around US$1 billion, to try to shore up growth in the second half of the year, Bonilla said.

Currently, Congress is evaluating a budget addition submitted by the Government, which includes this proposal. Bonilla is a close ally of Colombia’s leftist president, Gustavo Petro, and also served as his finance secretary when Petro was mayor of Bogotá.

Bonilla took office last month after Petro unexpectedly removed Columbia University professor Jose Antonio Ocampo from the ministry.

Bloomberg