Colombia: Central Bank keeps interest rate on hold in June
July 27, 2018
At its 27 July Board of Directors meeting, Colombia’s Central Bank (Banco de la República, BanRep) unanimously opted to hold the benchmark interest rate at 4.25%, matching the decision of the last meeting that took place at the end of June. The Bank’s latest move to keep the rate at the lowest level since July 2014 was in line with market expectations.
The Bank’s decision to hold fire came amid subdued inflationary pressures and a pick-up in economic activity. Inflation crept up marginally in June, coming in at 3.20% (May: 3.16%), largely owing to higher prices for food products. Nonetheless, it remained close to the midpoint of the Bank’s 2.0%–4.0% target range. While growth picked up in the first quarter and monthly indicators for the second quarter signal improving momentum, weaknesses persist in the construction, and the oil and mining sectors, raising concerns about the speed of the economic recovery. BanRep maintained its GDP estimate for 2018 at 2.7%, but again noted that the underutilization of productive capacity persists. Higher oil prices, healthier external demand, and growing investor confidence, along with accommodative monetary conditions, should buoy growth this year.
The communiqué provided little forward guidance beyond the statement that the Bank will continue to monitor the behavior of inflation and forecasts for economic activity, as well as global developments. It will decide the next course of action depending on the availability of new information. The next monetary policy meeting will be held on 28 September.
Author: Nihad Ahmed, Economist