Colombia Monetary Policy


Colombia: Central Bank stays put again; ends purchases of U.S. dollars

December 19, 2014

The Central Bank (BanRep) left its reference interest rate unchanged at 4.50% at its 19 December monetary policy meeting. The decision was widely expected by market analysts and represented the fourth consecutive decision to maintain interest rates following five successive rate hikes.

In the accompanying statement, BanRep noted that even though economic growth in the third quarter was slightly slower than expected, more recent indicators suggest dynamic domestic demand going forward. Moreover, the Central Bank stated that the output gap had almost closed and that inflation and inflation expectations were slightly exceeding the Bank’s 3.0% target. The Bank did, however, emphasize the following downside risks to economic growth: worsening terms of trade and lower export revenues due to the declining international oil price; a subdued global economic recovery; and uncertainty regarding the cost of external financing as risk premiums of several countries continued to rise and their currencies kept depreciating against the U.S. dollar. Against this backdrop, the Bank decided that the current level of the reference interest rate is adequate.

In addition, BanRep announced the end of a series of U.S. dollar purchase programs that began in 2012. According to BanRep, this decision reflects that adequate levels of foreign reserves have been reached and that the Colombian peso is continuing to depreciate.

The Central Bank reiterated that future decisions depend on the information available. The next policy meeting is scheduled for 30 January.

LatinFocus Consensus Forecast panelists see the policy rate ending 2015 at 4.66% and they expect the policy rate to end 2016 at 4.86%.

Author: Teresa Kersting, Economist

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Colombia Monetary Policy Chart

Colombia Monetary Policy December 2014 2

Note: Central Bank policy rate in %.
Source: Colombia Central Bank.

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