Colombia: Central Bank leaves rate on hold again
March 20, 2015
The Central Bank (BanRep) left its reference interest rate unchanged at 4.50% at its 20 March monetary policy meeting. The decision was in line with market expectations and represented the eighth consecutive meeting at which the rate was kept on hold.
BanRep pointed out that the Colombian economy had slowed down, noting that 2014 GDP growth had fallen slightly short of the Bank’s expectations and that economic growth in Q4 2014 had come in within the lower part of BanRep’s forecast range. BanRep expects the slowdown to persist in 2015, citing the impact of lower global oil prices on exports, investment and national revenues as main reason for the moderation. In addition, the Central Bank expects economic growth among Colombia’s main trading partners to remain subdued. In BanRep’s view, “[g]iven that part of the reduction of oil prices and of national income is permanent, domestic expenditure of the economy must adjust.”
Regarding price developments, BanRep pointed out that inflation had exceeded the Central Bank’s expectations and target range in February. 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, particularly higher food prices and higher prices for tradable goods, which reflect the pass-through of the depreciated Colombian peso (COP). According to the Central Bank, the peso’s depreciation against the U.S. dollar reflects the dollar’s strength, the impact of lower global oil prices on the economy as well as Colombia’s growing current account deficit. 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 24 April.