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Colombia Monetary Policy September 2018

Colombia: Central Bank keeps interest rate steady in September

At its 28 September Board of Directors meeting, Colombia’s Central Bank (Banco de la República, BanRep) unanimously decided to keep the benchmark interest rate at 4.25%, where it has been since April this year. The Bank’s decision was in line with market expectations.

Recovering economic activity and stability in inflation prompted the Bank to hold the rate steady. Inflation in August remained at July’s 3.1%, close to the midpoint of the Bank’s 2.0%–4.0% target range. The economy accelerated since the beginning of the year, with GDP in Q2 2018 expanding at the fastest pace since Q3 2015, thanks to the upward trend in oil prices. Available indicators for the third quarter suggest that the economy continued growing at a solid pace, although weaknesses in key sectors such as construction, and oil and mining cast uncertainties over the pace of recovery. The growth estimate for 2018 was held at 2.7%, but the Bank again highlighted the underutilization of productive capacity. Higher oil prices combined with accommodative monetary conditions and strengthening investor confidence should support growth in economic activity this year.

The communiqué provided little forward guidance, stating only that the Bank will continue to closely monitor the behavior of inflation and forecasts for economic activity and change in prices. Global economic developments, including the impacts arising from the U.S. Federal Reserve’s monetary policy tightening and the U.S.-China trade dispute, will also be factored into the Bank’s future decisions. The availability of new information will feed into the next course of action. The next monetary policy meeting will be held on 26 October.

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