Colombia: Central Bank again decides to leave reference rate on hold
August 21, 2015
The Central Bank (BanRep) decided to keep the reference interest rate unchanged at 4.50% at its 21 August monetary policy meeting. The decision was in line with market expectations and represented the 12th consecutive meeting at which BanRep kept the rate on hold.
In its accompanying statement, BanRep commented that data pointed to a weaker external demand than in 2014. Growth in the United States and the Eurozone has been lower than expected. In addition, China’s economy continues to slow its pace while the Latin American countries’ growth remains subdued or even negative. BankRep highlighted that, “the risk of a greater economic slowdown in China and the unexpected devaluation of the yuan generated volatility in global financial markets and in the prices of some commodities. The US dollar continues to strengthen and it is expected that the Federal Reserve of the United States will increase its interest rate during the remaining of this year.”
Regarding the domestic economy, BanRep’s various indicators, such as retail trade and economic expectations, pointed to weakening demand. In addition, both industry and construction sectors slowed during the last months.
Regarding price developments, BanRep pointed out that inflation recorded a slight increase in July. The main factors that are influencing these renewed inflationary pressures are the nominal depreciation getting passed to consumers, the increase in the cost of imported raw materials and a soft food supply. BankRep noted that, “the pass-through of part of the devaluation of the peso to consumer prices and the persistence of El Niño can delay the convergence of inflation to the target, both by their direct impact on prices and inflation expectations and through the activation of indexing mechanisms.”
Against this backdrop, the Bank decided that the current level of the reference interest rate is adequate. The next policy meeting is scheduled for 21 September.
Author: Eric Denis , Economist