Colombia Monetary Policy

Colombia

Colombia: Central Bank tightens reins amid buoyant growth

May 30, 2011

At its latest monetary policy meeting held on 30 May, the Central Bank raised the reference interest rate by 25 basis points to 4.00%. The move constituted the fourth consecutive month of rate hikes after policymakers began to gradually withdraw monetary stimulus following their meeting on 25 February. The decision was broadly anticipated by the market and further increases in interest rates were signalled by the Bank's Governor Jose Dario Uribe. Expanding global and domestic demand, which spur inflation expectations, prompted the Central Bank to act. As the economy remains dynamic, policymakers' decision aims to sustain the current rate of growth while preventing the economy from overheating. In addition, current inflationary pressures remained subdued with the latest reading at 3.0%, which is at the centre of the target range of 2% - 4%. Meanwhile the inflation expectations over the next 12 months index was also on the right track (May: +3.2% year-on-year). Additionally, the Central Bank announced that it will maintain its daily dollar purchases of USD 20 million until at least the end of September, in order to alleviate the appreciation of the Colombian peso. Owing to strong economic growth, solid financial conditions and an improving political situation, Moody's raised Colombia's credit rating into investment-grade territory for the first time in 12 years. The rating agency upgraded the foreign-currency government bond rating from Ba2 to Baa3 with a stable outlook. The next monetary policy meeting is due to be held on 17 June.


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