Colombia Monetary Policy May 2020

Colombia

Colombia: BanRep slashes policy rate to new record low

May 29, 2020

On 29 May, Colombia’s Central Bank (BanRep) decided to cut the benchmark interest rate by 50 basis points to a new record low of 2.75%. The move marked the Bank’s third consecutive cut as it tries to support the economy amid a likely deep recession due to the Covid-19 pandemic and low oil prices. The decision was, however, not unanimous: Two board members voted for a smaller 25-basis-point cut.

Falling inflation and grim economic conditions fueled BanRep’s decision to cut rates once again in May. In its accompanying statement, the Bank stated that inflation expectations continued to drop in April and that there appears to be growing able spare capacity in the Colombian economy and a drastic worsening in the labor market. In addition, a recent improvement in financial and exchange rate markets have helped create space for the Bank to provide additional monetary policy stimulus.

Looking ahead, the Bank’s communiqué was devoid of forward guidance; however, most of our FocusEconomics’ panelists see the Bank chopping the policy rate further to support the battered economy.

The next meeting will be held on 1 July.

LatinFocus Consensus Forecast panelists see the policy rate ending this year at 2.30% and next year at 2.98%.


Author: Angela Bouzanis, Lead Economist

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