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Colombia Monetary Policy November 2020

Colombia: BanRep remains on hold again in November

On 27 November, the Board of Directors of Colombia’s Central Bank (BanRep) unanimously decided to maintain the benchmark interest rate at its historic low of 1.75%. The decision marked the second consecutive hold and came in line with market expectations.

Gradually recovering activity, combined with the Bank’s assessment that inflation expectations were under control, underpinned the decision to stand pat. GDP contracted at a significantly softer pace in Q3 than in Q2, as the easing of Covid-19-related restrictions rekindled economic activity. Moreover, the Bank expects the recovery to continue next year, although it expressed concerns over the labor market, which despite its gradual improvement, is still plagued by structural problems. On the price front, inflation dropped to 1.7% in October, following September’s 2.0%, marking the lowest reading on record and landing below the Central Bank’s target band of 2.0–4.0%. Nonetheless, the Bank maintained its long-term view on inflation, with expectations anchored around 3.0% in 2021–2023.

Looking ahead, the Bank’s communiqué did not include any strong forward guidance. As in its previous meeting, BanRep reiterated that external financing conditions were favorable, while during the accompanying press conference, Governor Echavarría stressed that concerns of capital flight had eased considerably, amid recovering activity and positive developments surrounding a Covid-19 vaccine.

Commenting on the outlook for monetary policy, Felipe Camargo, economist at Oxford Economics, said:

“Although, according to our Taylor rule estimates, there may be further space for interest rate cuts, we think BanRep will adopt a more cautious stance and keep policy on hold, given the highly uncertain outlook.”

The next monetary policy meeting is scheduled for 18 December.

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