Colombia: Central Bank remains on hold, steps up FX purchases
September 28, 2012
At its latest monetary policy meeting on 28 September, the Central Bank (BanRep) left the reference interest rate unchanged at 4.75%, in a decision widely expected by the market. The move follows two interest rate cuts executed in July and August. According to the Bank, recent figures confirm a slowdown in the global economy. Nevertheless, monetary authorities explained that GDP figures for the second quarter showed a better-than-expected performance of the Colombian economy amid strong domestic demand. BanRep added that, in spite of an expected deceleration in the second half of the year, GDP growth for the full year is likely to fall above the mid-point of the Bank's 3.0% to 5.0% target. Regarding price developments, the Central Bank stated that inflation inched up in August, while inflation expectations remained stable. Monetary authorities added that the level of credit continues to moderate, therefore diminishing the risks of potential financial imbalances. Simultaneously, the Bank announced that it would be stepping up its purchases of foreign currency, by buying USD 3.0 billion between 1 October and 29 March 2013. This decision appears to reflect the Central Bank's concern regarding the strength of the Colombian peso. The Central Bank maintains its core inflation target for 2012 unchanged at 3%, with a tolerance margin of plus/minus 1.0 percentage points.