(Bloomberg) -- Colombian banks are slashing interest rates on credit cards by as much as 26 percentage points in response to pressure from the government of President Gustavo Petro, which is seeking to prevent a sharp slowdown in consumer spending.
Bancolombia SA, the nation’s biggest lender, halved its rate to 25% on cards with spending limits up to four million pesos ($850). These account for nearly half the cards it has issued, the bank said in a statement Thursday.
The bank’s main competitors followed suit on Friday. Banco de Bogota SA and Banco de Occidente SA, which are owned by Grupo Aval SA, cut rates to 20% on many cards.
Banco Davivienda SA, Scotiabank Colpatria SA and Banco Bilbao Vizcaya Argentaria Colombia SA, also cut their rates to 20%.
Most of the cuts only apply to items such as food, clothing, gasoline, education and public services. Before the cuts, banks generally charged a rate close to the upper legal limit of 46%.
Petro applauded the decision on Twitter, saying that the lower borrowing costs will provide a boost to the economy. During the last year and a half, the president has repeatedly criticized interest rate rises by the central bank, as policymakers struggled to rein in the fastest inflation in nearly a quarter of a century.
Bancolombia’s preference shares fell 1.6% in Bogota trading at 3:30 p.m. in Bogota, while Aval’s dropped 1.4%. The benchmark Colcap index fell 1.4%.
(Tweet translation: Excellent. It’s a good decision by private banks to lower interest rates. This will keep the financial system strong and the chances of stopping the economic stagnation will increase.)
Finance Minister Jose Antonio Ocampo tweeted that the cuts come after talks between the government and the financial sector.
Monetary Tightening
The central bank has raised it policy rate by 11 percentage points starting in 2021, to 12.75%, in its steepest-ever series of monetary tightening. Annual inflation accelerated to 13.3% last month, its fastest pace since 1999.
The large interest rate cuts will stimulate consumption, posing an additional challenge for policymakers, former central bank co-director Carolina Soto said. However, the impact will be “moderate,” since only some loans will be affected, she said.
The cuts are unlikely to induce the central bank to take any action to offset its impact, since real household income is already falling, said Munir Jalil, an economist at BTG Pactual.
Jalil forecasts one final interest rate hike, to 13.25%, at the central bank’s March 30 board meeting.
©2023 Bloomberg L.P.
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