Colombia: Central Bank decides to leave rate on hold again
June 24, 2015
The Central Bank (BanRep) decided to hold the reference interest rate unchanged at 4.50% at its 24 June monetary policy meeting. The decision was in line with market expectations and represented the eleventh consecutive meeting at which BanRep kept the rate on hold.
In its accompanying statement, BanRep commented that recent data suggest that there is a recovery taking place in the United States, the Eurozone and Japan, while China’s economy is continuing to slow down and the main Latin American countries’ output remains subdued. Overall, BankRep expects Colombia’s main trading partners to grow slower in 2015 than they did in 2014. BankRep also expects its terms of trade to be lower in 2015 than in previous years.
Regarding the domestic economy, BanRep commented that, “the information for the second quarter of 2015 suggests that the Colombian economy continues adjusting to the new external conditions, and that household expenditure could show moderate growth. This takes place within an environment of a strong labor market and real interest rates that are still expansionary. Similarly, moderation in investment is also expected, despite the fact that civil works would maintain a dynamic behavior. On the other hand, it is expected that, in time, the depreciation of the peso in real terms will have a positive impact on the behavior of exporting sectors, as well as on those competing with imports.”
Regarding price developments, BanRep pointed out that inflation had undershot both the Central Bank’s expectations and the target range in May, due to the lower pace of increase in the prices of foodstuffs. According to the Central Bank, medium-term inflation expectations remain between 3.0% and 3.5%.
Against this backdrop, the Bank decided that the current level of the reference interest rate is adequate. The next policy meeting is scheduled for 31 July.
Author: Eric Denis , Economist