Colombia Monetary Policy


Central Bank lifts rates to tame strong economic growth

At its latest monetary policy meeting held on 17 June, the Central Bank raised the reference interest rate by 25 basis points to 4.25%. The tightening constituted the fifth consecutive month of rate hikes after policymakers began to gradually withdraw monetary stimulus following their meeting on 25 February. The rate hike was broadly anticipated by the market, in spite of requests from President Juan Manuel Santos that the Central Bank refrain from raising rates further in order to preserve economic growth. Members of the council seem to coincide with President Santos, as the decision was not unanimous for the first time since the kick-off of the tightening cycle. According to the Central Bank, the rate hike was necessary, as buoyant household consumption and fast credit growth are fanning price pressures, requiring the Bank to act, in order to ?keep inflation within the target range for this year and the coming one and contribute to preventing future financial imbalances.? The Central Bank stated that inflation projections for the end of this year are on track, while some real sector indicators have been slowing recently. In addition, the monetary authority stressed that the recovery in a number of developed economies could be slower than anticipated. Moreover, the board removed the sentence: ?move towards a less expansionary monetary policy should continue? from the communique, which was seen as a signal that interest rates may ease in the future. Against this backdrop, analysts share the view that the 17 June statement was the least hawkish of the year, which may indicate a pause in interest rate hikes in the coming months. The next monetary policy meeting is due to be held on 29 July.

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