Colombia: Central Bank leaves rate on hold again
May 22, 2015
The Central Bank (BanRep) left its reference interest rate unchanged at 4.50% at its 22 May monetary policy meeting. The decision was in line with market expectations and represented the tenth consecutive meeting at which the rate was kept on hold.
In its accompanying statement, BanRep commented that global economic activity data for the first quarter of 2015 confirmed weak levels of demand, citing the disappointing growth of the United States, the weak expansion of the Eurozone economies and the ongoing slowdown in China. BankRep expects the U.S. Federal Reserve to begin its rate hike by the end of 2015, while Central Banks in the Eurozone and Japan are expected to maintain their accommodative monetary policies. Regarding the domestic economy, BanRep commented that, “the information on retail trade, consumer confidence, and the survey of economic expectations by Banco de la República suggest a slowdown of consumption and private investment. On the supply side, the fall of industrial production, the lower growth of non-regulated energy demand, and the downturn in the present and future perception of trade indicate that economic growth will continue slowing down.” However, the Central Bank expects the strength of the labor market and the depreciation of the Colombian peso (COP) to absorb part of the slowdown.
Regarding price developments, BanRep pointed out that inflation had exceeded both the Central Bank’s expectations and the target range in April. Moreover, according to the Central Bank, medium-term inflation expectations are now above 3.0%. In BanRep’s view, the significant increase in inflation is mainly due to transitory factors. According to the Central Bank, the peso has recently started a pronounced depreciation against the U.S. dollar, reversing the trend that began in April.
Against this backdrop, the Bank decided that the current level of the reference interest rate is adequate. The next policy meeting is scheduled for 20 June.
Author: Eric Denis , Economist