Colombia: Central Bank leaves rate on hold again
May 12, 2015
The Central Bank (BanRep) left its reference interest rate unchanged at 4.50% at its 24 April monetary policy meeting. The decision was in line with market expectations and represented the ninth consecutive meeting at which the rate was kept on hold.
In its accompanying statement, BanRep commented that it expects the slowdown that began at the end of 2014 to persist in 2015, citing the weaker growth rates of Colombia’s trading partners and low commodity prices. In BanRep’s view, “the available data suggest a slowdown of consumption and investment in some sectors. This is consistent with the fall in national income and the lower incentives to invest in sectors that produce natural resources. Additionally, the income originated in exports has fallen as a result of the lower international prices of some of our main exports (especially that of oil) and the low growth in the volume of industrial exports.” 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 the Central Bank’s expectations and target range in April. Moreover, according to the Central Bank, medium-term inflation expectations are now above 3.0%. However, in BanRep’s view, the significant increase in inflation is mainly due to transitory aspects. According to the Central Bank, the peso has recently started to strengthen against the U.S. dollar, although it still remains at much lower levels than the average of 2014. While BanRep expects the weaker peso to stimulate exports and help moderate the impact of low oil prices on external and public accounts, it also noted that this will lead to higher inflation in the short term.
Against this background, the Bank decided that the current level of the reference interest rate is adequate. The next policy meeting is scheduled for 22 May.
Author: Eric Denis , Economist