Colombia: Central Bank keeps rate steady in June meeting
In a unanimous decision, Colombia’s Central Bank (Banco de la República, BanRep) opted to hold the benchmark interest rate at 4.25% at its latest Board of Directors meeting on 21 June. The rate has been kept at the current level since 27 April 2018, when it was cut by 25 basis points. The decision was in line with market expectations.
Stable price pressures and below-target core inflation led the Bank to maintain its expansionary stance. Inflation in May mirrored April’s 3.3%, thus remaining within the Bank’s 2.0%–4.0% target band. While the Bank noted that supply shocks could lift inflation in the coming months, namely stronger domestic demand and slower portfolio inflows widening the current account deficit, Q1’s lower-than-expected growth outturn and uncertainty over the pace of decline in economic slack, will likely prompt the Bank to delay tightening in the near-term.
The accompanying statement 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 be factored in to the Bank’s future decision. A minority of FocusEconomics panelists sees a rate hike happening before year-end, while a larger share projects it being held off till 2020.
Commenting on the outlook for policy course ahead, analysts at J.P. Morgan noted that:
“In Colombia, we have recently scaled back the hikes we expect for 4Q given a growth pothole in 1Q, but we remain leery over financial stability concerns given a domestic-demand-driven widening of the current account deficit (to well above 4% of GDP) and slower portfolio flows. That said, an unexpectedly benign decision from Moody’s to remove its negative outlook and refrain from downgrading (despite Fitch putting on a negative outlook), alongside easier DM rates, may be enough to buy BanRep more time to keep rates in slightly easy territory.”
The next monetary policy meeting will be held on 26 July.