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Colombia Monetary Policy March 2020

Colombia: Central Bank slashes rates for first time since April 2018

Colombia’s Central Bank (BanRep) cut the benchmark interest rate by 50 basis points to 3.75% at its latest Board of Directors meeting on 27 March. The decision was unanimous, broadly in line with market expectations and marked the first cut in nearly two years.

The deteriorating economic scenario due to the Covid-19 pandemic and the oil price crash drove the decision. The Bank noted that the cut would contribute to the recovery of internal demand in the future once the shock had passed and markets had returned to normality, while it also would cushion some of the financial burdens on households and business.

In addition to the rate move, the Central Bank announced further liquidity measures in both Colombian pesos and U.S. dollars, apart from the measures already introduced throughout March, which included, among others, a form of exchange-rate hedging through the establishment of an auction of non-deliverable forwards (NDFs) worth up to USD 1 billion to facilitate trading in dollars. The new liquidity provisions included an additional USD 1 billion of NDFs and USD 400 million in currency swaps, while the Bank also extended the access to severance funds to repo auctions for the purchase of private debt, as well as for the public workers severance agency (Fondo Nacional de Ahorro) to repo auctions to purchase private and public debt.

As forward guidance, the Bank stressed it will closely monitor the situation and the impact of the outbreak of Covid-19 on the economy and stands ready to take “all the decisions necessary in its competence to contribute to the proper operation of the economy”, noting that there was room for additional easing.

The next monetary policy meeting will be held on 30 April.

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