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Colombia Monetary Policy October 2023

Colombia: Central Bank holds fire in October

At its 31 October meeting, Colombia’s Central Bank (BanRep) decided to keep the benchmark interest rate unchanged at 13.25%. Five board members backed the decision, while two called for a cut of 25 basis points. The decision was expected by the market and marked the fourth pause in a row following a cumulative 1,150 basis point increase since September 2021.

The Bank said it made the decision due to two main reasons. Firstly, inflation remained more than three times the midpoint of the Bank’s 2.0–4.0% target range in September—the most recent month with data—despite easing for the sixth consecutive month. At 11%, the inflation print remains higher than in neighboring countries, such as Brazil and Peru, whose central banks have already started lowering interest rates. Secondly, inflation expectations for the end of 2023 and 2024 rose compared to the last survey in July, from 8.9% to 9.5% and from 5.0% to 5.3%, respectively—and thus further above the Bank’s target range.

Our panelists expect the Bank to begin cautiously lowering interest rates by the end of the year, before more substantially easing monetary policy next year. Stubborn inflation is in large part due to the recent surge in commodity prices, and should, therefore, ease more substantially in the medium run along with lower oil and food prices. A key upside risk noted by the Bank is El Niño; the weather pattern could cause droughts in the country, threatening harvests and stoking food inflation.

The Bank’s next meeting is set for 30 November.

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