Colombia: Central Bank stays put at first meeting of the year
January 31, 2019
At its Board of Directors meeting held on 31 January, Colombia’s Central Bank (Banco de la República, BanRep) maintained the benchmark interest rate at 4.25%, where it has been since 27 April when the Bank cut the rate by 25 basis points. The Bank’s decision was unanimous and in line with market expectations.
Subdued inflation—pushed down further by lower oil prices—well-anchored inflation expectations, and healthy economic activity prompted the Bank to keep the rate on hold. Inflation inched down to 3.2% in December (November: 3.3%), nearing closer to the midpoint of the Bank’s 2.0%–4.0% target range. While buoyant domestic demand has supported growth, uncertainty lingers over the pace of the recovery. Going into 2019, growth is set to accelerate on higher oil production and an upturn in domestic demand. Meanwhile, the recently-approved tax bill, which included lowering the corporate tax rate from 33% to 30%, should boost investment.
The Bank’s accompanying statement indicated a continued neutral stance, offering little forward guidance beyond reiterating that the trajectory of inflation will be closely monitored in the context of global developments, including the U.S. Federal Reserve’s tightening cycle, the evolution of oil prices, and global trade tensions. That said, BanRep is expected to embark on a tightening cycle in 2019 given that the emerging El Niño weather phenomenon and the recently-announced minimum wage hike are likely to stoke prices price pressures. The next monetary policy meeting will be held on 22 March.
Colombia Interest Rate Forecast
LatinFocus Consensus Forecast panelists expect the policy rate to end 2019 at 4.89% and 2020 at 5.13%.
Author: Nihad Ahmed, Economist