Colombia: BanRep holds rate for fourth consecutive meeting in January
On 29 January, the Board of Directors of Colombia’s Central Bank (BanRep) decided to maintain the benchmark interest rate at its record low of 1.75%. As in December’s meeting, two of the seven board members voted in favor of a 25-basis-point cut. The decision, which marked the fourth consecutive hold, was widely anticipated by market analysts. The decision was fueled by signs of an ongoing recovery, and the Bank’s expectations that inflation will move closer to its target in the medium term, prompting BanRep to leave its expansionary stance unchanged. Available data suggests that the recovery continued in the final quarter of 2020 and is expected to carry on this year. On the price front, the voting minority highlighted the historically low inflation levels (November: 1.5%; December: 1.6%) seen recently and argued that this trend of subdued inflationary pressures would continue in 2021, thus providing space for another rate cut. Nonetheless, the majority of the Board argued that inflation is expected to intensify from the second quarter of the year onwards and remain at 2.7% and 3.1% in 2021 and 2022 respectively, thus sticking close to the midpoint of the Bank’s target band of 2.0–4.0%.
Looking ahead, the Bank’s communiqué did not include strong forward guidance. Similar to the previous meeting, BanRep highlighted that external financing conditions remain favorable but also stressed the ongoing uncertainty stemming from the pandemic.
Daniel Velandia and Camilo Durán, analysts at Credicorp Capital, commented:
“We continue to expect the repo rate to remain at 1.75% throughout this year, but the stance of two Board members, the possibility of a strong slowdown of activity in 1Q21 and the very low inflation leave the door open for potential, additional cuts in the coming months.”
The next monetary policy meeting is scheduled for 26 February.