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Colombia Monetary Policy July 2023

Colombia: BanRep leaves policy rate unchanged in July

At its 31 July meeting, the board of directors of Colombia’s Central Bank (BanRep) unanimously voted to keep the benchmark interest rate unchanged at 13.25%. The decision, which was expected by the market, marked the second pause in a row following a cumulative 1,150 basis point increase since September 2021.

In justifying its decision, BanRep noted that economic activity had slowed more than expected in April and May, helping to bring down price pressures. BanRep noted that inflation in June was 1.0 percentage point below that seen in December 2020 and that inflation expectations had improved. Year-ahead inflation expectations stood at 6.2% in July, closer to the BanRep’s 2.0–4.0% medium-run target than the 6.7% seen at the last policy meeting in May.

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 with a 25 basis point cut in September. That said, there are some notable upside risks: Firstly, core inflation could be more persistent than expected due to the prevalence of salary indexation; Secondly, headline inflation could rise more than expected due to the recent removal of fuel subsidies; Thirdly, the El Niño weather pattern could cause food prices to rise by more than projected.

The next monetary policy meeting is scheduled for 29 September.

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