Colombia: Central Bank leaves lending rate unchanged for fourth consecutive month
November 25, 2016
The board of the Central Bank (BanRep) decided to keep the lending rate unchanged at 7.75% in a 5-to-2 decision at its 25 November monetary policy meeting. The decision was in line with market expectations and represented the fourth straight month in which BanRep kept the rate on hold. The Bank ended a year-long tightening cycle on 31 August during which it had increased the rate by a cumulative 325 basis points in an attempt to curb stubbornly-high inflation, even as economic growth struggled due to low oil prices.
The decision to hold rates came after inflation eased for a third consecutive month in October, falling to 6.5%. According to the Bank’s official statement, the slowdown in inflation is expected to continue since temporary supply-side shocks that had fueled inflation earlier this year are fading at a faster-than-expected rate. That said, inflation expectations remain above the 3.0% target. BanRep also highlighted as important factors behind its decision Q3’s dismal GDP figure and the weak state of the global economy. However, the Bank expects the global economy to recover slightly in 2017 and for the United States to start an interest rate tightening cycle, which will likely influence Ban Rep’s monetary policy in the coming year.
The Bank concluded its statement by endorsing the government’s proposed tax reform, which includes a broadening of the tax base and a Value-added Tax hike. BanRep considers the fiscal reform to be fundamental in order to avoid potential credit rating downgrades and to support long-term growth. The next meeting is scheduled for 16 December, although there will be another meeting before then to pick Governor Jose Darío Uribe’s successor. Uribe’s tenure expires at the end of the year.
Author: Luis Lopez Vivas, Economist