Colombia Monetary Policy


Colombia: The Central Bank continues to tighten the reins

July 29, 2011

At its latest monetary policy meeting on 29 July, the Central Bank raised the reference interest rate by 25 basis points to 4.50%. The tightening constituted the sixth consecutive monthly of rate hike after policymakers began to gradually withdraw monetary stimulus following their meeting on 25 February. The move was broadly anticipated by the market, although the Board's decision was not unanimous. According to the Central Bank, the reasons behind the rate hike were a buoyant economy spurred by both strong domestic and external demand, which makes further monetary stimulus unnecessary, as well as rapid credit growth, which has already exceeded nominal GDP growth. Moreover, the communique underscored that some asset prices are at historically high levels. The increase in the benchmark rate aims to keep inflation within the target range for this year and the next, and help prevent future financial imbalances from threatening the sustained growth of the economy. Meanwhile, the Central Bank announced that it will continue its daily purchases of USD 20 million daily at least until September 30.


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