Colombia: Central Bank holds fire in July meeting despite intensifying price pressures
July 26, 2019
Colombia’s Central Bank (BanRep) held the benchmark interest rate at 4.25% at its latest Board of Directors meeting on 26 July. The decision, which was unanimous and in line with market expectations, means that the rate has remained at the same level since 27 April 2018—when it was cut by 25 basis points.
The Bank held rates despite a continued rise in price pressures in June as core inflation remained below the 3.0% target and on expectations that headline inflation will ultimately converge to the target. Inflation inched up to 3.4% from 3.3% in May on higher food prices. While the Bank noted the risk of inflation climbing further on supply shocks in the coming months, namely due to a pick-up in domestic demand and slower portfolio inflows widening the current account deficit, the Bank will likely maintain its current stance in the near-term given the economy’s relatively weak performance since the beginning of the year, uncertainty over the pace of decline in excessive productive capacity and the global pullback in hiking rates will likely prompt.
The communiqué offered little forward guidance beyond stating that forecasts on economic activity and inflation, along with the evolution of the balance of payments in the context of global developments, will guide the Bank’s future decision. A minority of FocusEconomics panelists project a rate hike before year-end, while a larger share projects it being held off until 2020.
The next monetary policy meeting will be held on 27 September.
Author: Nihad Ahmed, Economist