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Colombia Monetary Policy April 2021

Colombia: BanRep stands pat in April

At its meeting on 30 April, the Board of Directors of Colombia’s Central Bank (BanRep) kept the benchmark interest rate unchanged at 1.75%, marking the sixth consecutive hold. Although the decision was in line with market analysts’ expectations, it was not unanimous, with one of the seven Board members voting in favor of a 0.25% cut.

The hold came amid improved growth prospects for 2021 and on-target inflation expectations. Ultimately, the Bank decided that immediate further easing was not warranted given the economy’s better-than-anticipated performance in Q1, which led it to upgrade its GDP forecast for 2021 from 5.2% to 6.0%. However, despite trending downwards, the unemployment rate remained stubbornly high at the tail end of Q1 (March: 14.2%; February: 15.9%). This, coupled with an elevated monetary poverty rate in 2020, prompted the Bank to maintain its accommodative stance. On the price front, inflation came in at 1.5% in March (February: 1.6%), and is seen accelerating and averaging close to the midpoint of the Bank’s 2.0–4.0% target range this year and next. That said, the Bank stressed that uncertainty surrounding the pandemic’s course and concerns over fiscal policy continue to pose downside risks.

Looking ahead, the Bank’s communiqué did not include explicit forward guidance. However, it stressed that “public financing costs and access could become compromised without an adequate fiscal adjustment”, which would limit the space for it to continue its accommodative stance.

Daniel Velandia and Camilo Durán, analysts at Credicorp Capital, said:

“We maintain our view that the policy rate will remain at 1.75% throughout 2021 and the first hike will come in 1Q22. We think that it will be tough for the dissenting member to convince other Board fellows to cut interest rates in the coming months, given the still high uncertainty around inflation as the expected phase of acceleration in the CPI will start this month (though most of the upside will come from volatile goods and statistical base effects) and, more importantly, considering the current pressures from markets amid high fiscal uncertainty and the tough welcome that the tax reform has suffered from the public and political parties.”

The next monetary policy meeting is scheduled for 28 June.

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