New Colombia Central Bank Board Members may Back Rate Cuts

RIO DE JANEIRO, BRAZIL – The announcement this week that Viviana Taboada and Mauricio Villamizar will join Colombia’s central bank board generated not only confusion over the spelling of Taboada’s first name, but predictions that interest rate cuts may be on the horizon.

The two policymakers, appointed by President Ivan Duque, were criticized by some in the market for their youth, Taboada’s personal connections and the possibility they may back cutting an already historically low interest rate to help boost the economy.

Taboada – whose first name is spelt Viviana on official documents but was written as Bibiana by the bank and Duque’s office – is the daughter of Colombia’s ambassador to the United Nations. The bank did not respond to a request for comment on Taboada’s family connections.

The bank’s seven-member board has held the benchmark interest rate at 1.75% for four months, but two policymakers argued at both the December and January meetings for a quarter-percentage-point cut.

The bank said this week that a second surge of coronavirus infections and restrictions imposed by large cities to stop the spread of the virus will slow the economic recovery. It lowered its growth forecast for 2021 to between 2% and 6%.

Seventeen of 22 analysts polled by Reuters said the chances of a rate cut grew following the appointments of Taboada and Villamizar. The remaining four ruled out any effect.

“With the new alignment, the possibility of a reduction grows. I’m not saying it’s bad to really lower the rate, just that the bank can’t change it’s vision abruptly because of changes in its members,” said Felipe Campos, head economist at Alianza.

The central bank does not say how policymakers vote but a majority of those surveyed agreed Finance Minister Alberto Carrasquilla and policymaker Arturo Galindo, appointed by Duque last year, were most likely to have backed a cut.

“It’s natural for the market to speculate – perhaps a bit based on the conspiratorial idea that with the president appointing nearly all the board members he can drive monetary policy,” said Wilson Tovar, head of economic studies at Acciones y Valores. “I don’t think that will happen.”

With the two latest appointments, Duque has named a total of four board members. Galindo plans to step down this year.

“New members tend to vote closely with the government until they make their own space on the board and take a more independent position,” said an economist and former central bank employee who asked not to be named. “We don’t know if the same will happen this time, but it can be expected. Add the (Galindo) change still to come, and the uncertainty increases.”