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Colombia Monetary Policy June 2023

Colombia: BanRep halts rate hikes for first time in 15 meetings in June

At its 30 June meeting, the board of directors of Colombia’s Central Bank (BanRep) unanimously decided to leave its benchmark interest rate unchanged at 13.25%, as had been expected by market analysts. The move marked the first pause after a cumulative rise of 1,150 basis points since the current tightening cycle began in October 2021.

In justifying its decision, the BanRep pointed to a more benign inflation panorama. In May, both headline inflation and year-ahead inflation expectations receded, moving closer to the Central Bank’s 2.0–4.0% medium-run target. The BanRep also pointed toward the recent slowdown in economic activity and the strengthening of the peso in the year so far in explaining its decision.

In its press release, the BanRep avoided giving explicit forward guidance, saying that decisions would depend on future developments. For example, it pointed to the upside risk to inflation posed by the El Niño weather phenomenon. Nonetheless, given the slowing economy and the recent deceleration of inflation expectations, most of our panelists believe that the Bank has reached the end of its hiking cycle and will begin lowering rates before the end of the year.

The next monetary policy meeting is scheduled for 31 July.

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