Colombia Monetary Policy

Colombia

Colombia: Central Bank continues interest tightening cycle

July 31, 2014

The Central Bank (BanRep) increased its reference interest rate by 0.25 percentage points to 4.25% at its 31 July monetary policy meeting. The decision was in line with market analysts’ expectations and represented the fourth consecutive rate hike.

In the accompanying statement, BanRep explained that it took the decision to hike the rate amid the country’s current strong economic performance and inflation expectations that are close to and even slightly above its 3.0% target rate. According to the Central Bank, aggregate demand posted strong growth and productive capacity has reached a level that is nearly consistent with full employment. The Bank noted that GDP growth was strong in Q1 due to solid consumption and construction activity, which are expected to remain a main driver of GDP growth during the upcoming quarters. Furthermore, the Bank expects dynamic household spending throughout this year as consumer confidence, retail sales, unemployment and consumer credits evolved positively in recent months. Despite the recently weaker-than-expected economic performance of Colombia’s main trading partners, BanRep said that financial and real indicators point to increasing external demand during the upcoming quarters.

Regarding price developments, BanRep said that due to lower prices for foodstuff and lower administered prices, inflation moderated somewhat in June after having moved closer to the 3.0% target in previous months. However, the Bank maintains inflation expectations of close to or even above 3.0%.

The Bank did not signal the likely nature of its next move and stated that upcoming monetary policy decisions will depend on the development of inflation and economic indicators and projections. The next policy meeting is scheduled for 29 August.

LatinFocus Consensus Forecast panelists see the policy rate at 4.73% at the end of 2014. Panelists expect the policy rate to end 2015 at 5.07%.


Author: Teresa Kersting, Economist

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Colombia Monetary Policy July 2014

Note: Central Bank policy rate in %.
Source: Colombia Central Bank.


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