Colombia: Central Bank cuts rates unexpectedly in February
February 24, 2017
The board of the Central Bank (BanRep) decided to cut the policy rate by 25 basis points to 7.25% in a 4-to-2 decision at its 24 February monetary policy meeting, which was the second one to be headed by recently appointed Governor Juan José Echavarría. The decision surprised market analysts, who had widely expected the Bank to hold rates for a second consecutive month.
Inflation, which had hit an over-decade high in July 2016, has decreased every month since then and will likely continue to fall as the effects of strong transitory supply shocks that fueled inflation last year continue to fade. These improved conditions are allowing the Bank to cut rates and provide Colombia’s struggling economy with easier financial conditions. Last year, the economy grew at the slowest pace since the height of the global financial crisis in 2009 and could remain subdued in 2017 if oil prices fail to recover further.
The statement was devoid of clear forward guidance and highlighted that, “new information on inflation, economic activity and the international context will determine the pace of policy normalization.” While the board expects rising external demand this year, its GDP growth forecast for 2017 continues to include a wide variance—between 0.7% and 2.7%—and the Bank will likely adjust its monetary policy as the outlook becomes clearer.
The next monetary policy meeting is scheduled for 24 March.
Author: Luis Lopez Vivas, Economist