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Colombia Monetary Policy March 2022

Colombia: BanRep surprises and slows tightening of conditions in March

At its 31 March meeting, the Board of Directors of Colombia’s Central Bank (BanRep) voted to increase the benchmark interest rate by 100 basis points to 5.00% from 4.00%. The move marked the fifth rate hike since the gradual tightening of conditions began in September 2021. While the decision to raise the rate was unanimous, the vote was once again split with regard to its size, with two of the seven board members voting for a 150 basis-point rise. The decision to increase the rate was in line with market expectations, but the size of the increase took analysts largely by surprise.

The decision was driven by persistently high price pressures and the ongoing upward trajectories of headline and core inflation. As a result, headline and core inflation projections were upgraded to 6.4% and 3.8% for 2022 and 2023, respectively, as risks to the short-term inflation outlook have recently increased, partly due to Russia’s invasion of Ukraine. Consequently, the Bank sees inflation remaining well above the upper bound of its 2.0–4.0% target band this year. Additionally, BanRep noted that high frequency data suggests a continued solid economic performance at the outset of this year.

With regard to future policy moves, the Bank did not provide explicit forward guidance in its communiqué, but reiterated its commitment to a “gradual but steady process that will continue in the coming months to ensure a progressive return to inflation at the 3.0% annual target”. Consequently, virtually all of our panelists expect further rate increases in Q2.

The next monetary policy meeting is scheduled for 29 April.

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