Colombia Monetary Policy

Colombia

Colombia: Central Bank keeps reference rate unchanged

February 20, 2015

The Central Bank (BanRep) left its reference interest rate unchanged at 4.50% at its 20 February monetary policy meeting. The decision was in line with market expectations and represented the seventh consecutive meeting at which the rate was kept on hold, following five rate hikes.

BanRep pointed out that while growth was solid in the United States, it remained sluggish in the Euro area and Japan as well as slowed down in most of the large emerging economies. Nevertheless, BanRep expects Colombia’s main trading partners to expand at a faster pace this year than in 2014. According to the Bank, the drop in oil prices and several other commodities, which had been observed since the end of 2014, had bottomed out in recent weeks. The Bank further noted that risk premiums moderated recently, but were still below their 2014 average. In addition, BanRep stated that while it expects domestic demand to have performed robustly in the final quarter of 2014, exports likely constituted a notable drag on growth, resulting from the low oil price.

Regarding price developments, BanRep claimed that January inflation overshot the Bank’s and market analysts’ expectations. However, according to the Central Bank, medium-term inflation expectations moderated and are close to 3.0% now. In addition, BanRep underlined that in its view, the pass-through of the weak Colombian peso on inflation will only be temporary and will not increase medium-term inflation expectations significantly. Against this background, the Bank decided that the current level of the reference interest rate is adequate. The next policy meeting is scheduled for 20 March.

LatinFocus Consensus Forecast panelists see the policy rate ending 2015 at 4.45% and they expect it to end 2016 at 4.63%.


Author: Teresa Kersting, Economist

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Colombia Monetary Policy February 2015

Note: Central Bank policy rate in %.
Source: Colombia Central Bank.


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