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Colombia Monetary Policy June 2021

Colombia: BanRep holds rate in June

At its 28 June meeting, the Board of Directors of Colombia’s Central Bank (BanRep) kept the benchmark interest rate unchanged at the record low of 1.75%. The decision was unanimous and in line with market expectations.

The Bank’s decision came amid signs of an ongoing recovery and well-anchored inflation expectations. Following stronger-than-expected growth in the first quarter, high-frequency data suggests that the same dynamics carried over into the second quarter, prompting the Bank to upgrade its GDP growth projections for 2021 to 6.5% from 6.0%. However, high Covid-19 infection rates and mass protests midway through the quarter are expected to have suppressed growth, keeping GDP below pre-pandemic levels and ultimately leading the Bank to maintain its accommodative stance. On the inflation front, BanRep noted that although the recent buildup in price pressures might take longer to cool, projections remain well anchored.

Looking ahead, the Bank’s communiqué did not include any explicit forward guidance. Similar to its previous meeting, the Bank stressed that failure to implement fiscal adjustments “could compromise access to financing and increase financing costs, which would eventually reduce the space for monetary policy to continue supporting recovery in economic activity and employment”. A small majority of our panelists see the benchmark interest rate remaining unchanged at 1.75% for the rest of the year.

Commenting on the monetary policy outlook, Daniel Velandia and Camilo Durán, analysts at Credicorp Capital, noted:

“As expected, the BanRep continues to show a patient stance amid the current uncertain scenario considering that the inflation outlook has not worsened as much as in regional peers. We continue to expect this patient approach to be maintained ahead, so we reaffirm our forecast of a stable repo rate at 1.75% this year. That said, risks have tilted towards an earlier normalization.”

The next monetary policy meeting is scheduled for 30 July.

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