Colombia Monetary Policy

Colombia

Colombia: Central Bank cuts interest rates again

August 25, 2012

At its latest monetary policy meeting on 24 August, the Central Bank (BanRep) cut the reference interest rate by 25 basis points to 4.75%, in a unanimous decision widely expected by the market. The move marks the second interest rate cut in as many months, thus reversing the two 25-basis point rate hikes implemented in January and February. According to the Bank, second quarter figures corroborate that the global slowdown continues. In addition, international financial markets remain unstable, while risks stemming from the Euro area continue to affect confidence. Monetary authorities added that global trade and industrial data suggest the probability of a further slowdown in the world economy. This, in turn, is causing Colombian exports to slow down, according to BanRep. Regarding price developments, the Central Bank stated that inflation is moderating and that inflation expectations are generally easing. Monetary authorities added that the level of credit is moderating but remains high. Simultaneously, in order to provide the economy with some extra liquidity, the Bank announced another round of intervention in FX markets, by which BanRep will buy USD 700 million until the end of September. This decision was not expected by the market and appears to reflect the Central Bank's concern regarding the strength of the Colombian peso. The Central Bank maintains its core inflation target for 2012 unchanged at 3%, with a tolerance margin of plus/minus 1.0 percentage points


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