April 30, 2020 / 6:37 PM / a month ago

UPDATE 2-Colombia's central bank cuts interest rate to 3.25%, announces more liquidity measures

(Adds Echavarria comment about inflation)

BOGOTA, April 30 (Reuters) - Colombia’s central bank board unanimously cut the benchmark interest rate by 50 basis points to 3.25% on Thursday, as policymakers tried to boost the economy while a nationwide coronavirus quarantine rolls on.

The board also announced additional liquidity measures meant to bolster the economy, including a new sale of dollars in a forward operation worth up to $1 billion.

“The board of the central bank unanimously reduced its interest rate by half a percentage point to 3.25%. This way, there is continuity to monetary policy’s countercyclical stimulus,” the seven-member board said in a statement.

The board has already taken a plethora of liquidity measures meant to help the country weather the effects of COVID-19, including reducing reserve requirements for banks by more than $2 billion.

It will also renew forwards that expire before May 30, the board said in the statement, and will continue currency swap auctions for up to $400 million, among other measures.

“This time is it much more difficult than in the past to say something about the future of interest rates,” board chief Juan Jose Echavarria said in a virtual news conference.

“The uncertainty is enormous, it is possible that as at other central banks there will be further reductions, we will see at what rhythm,” he said.

The government has drastically reduced its economic growth prediction and now expects a contraction of at least 1.6%, amid a semi-paralysis of the country’s economy during a nearly seven-week nationwide quarantine set to last until May 11.

The current economic situation could mean a fall in inflation to below the bank’s long-term 3% target, Echavarria said.

“There is a great probability (inflation) will be below the target, that is to say it is very probable that in a situation like the one the economy is in, as we’re seeing it, that inflation is below 3% at the end of this year,” he said.

A majority of analysts in a Reuters survey last week had expected a cut of 50 basis points, with a minority predicting cuts of other amounts.

The board made a 50-basis-point cut to the rate in March, after holding it at 4.25% for nearly two years.

The board is not optimistic that lower borrowing costs from possible continued cuts in the rate will immediately help alleviate economic fallout from the coronavirus, Echavarria said last week. (Reporting by Nelson Bocanegra, Oliver Griffin, Julia Symmes Cobb and Carlos Vargas Editing by Chizu Nomiyama and Jonathan Oatis)

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