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Colombia Monetary Policy June 2018

Colombia: Central Bank keeps interest rate on hold in June

At its 29 June Board of Directors meeting, Colombia’s Central Bank (Banco de la República, BanRep) unanimously voted to maintain the benchmark interest rate at 4.25%, following a rate cut by 25 basis points at its last meeting held in April. The Bank’s recent move was in line with analysts’ expectations. The benchmark interest rate is now at the lowest level since July 2014.

The Bank’s decision came against the backdrop of subdued inflation and improving economic prospects amid buoyant external conditions underpinned by higher oil prices. Inflation rose for the first time in May following five consecutive months of decline but remained at a muted level: It inched up to 3.2% in the month (April: 3.1%), hovering close to the midpoint of the Bank’s 2.0%–4.0% target range.

The Bank held off from easing its policy stance any further given upside risks to inflation, including a rise in food prices and a stronger-than-expected depreciation of the peso, which have fueled higher inflation expectations and could delay inflation’s trajectory towards the 3.0% target. While weakness in economic activity persists, favorable oil prices and the improving trend in confidence should bolster demand and lift growth. BanRep forecasts that GDP will grow 2.7% this year, supported by healthier external demand, stronger infrastructure investment and accommodative monetary conditions. The projection would be a marked improvement from 2017’s performance, but well below potential growth.

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 27 July.

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