The Central Bank of Colombia, which raised its rage by 125 basis points from April through August, also confirmed its guidance that monetary policy would depend on new information.
Colombia's headline inflation rate rose to 3.29 percent in October from 2.86 percent in September, with the rise in line with the bank's expectations and due to a transitory rise in food prices.
The central bank's growth forecast for the economy this year was maintained at 4.5-5.5 percent, with a 5.0 percent growth the most likely, the bank said. Colombia's government has estimated growth of 4.7 percent this year.
The main thrust of growth in the second half of this year has come from domestic demand while the price of oil, and thus the terms of trade, have declined and growth is expected to be lower than in the first half.
Earlier this month Jose Dario Uribe, central bank governor, forecast that Colombia's growth would slow down to around 4.3 percent in 2015 due to lower oil prices and exports. He also estimated the country's annual growth potential of around 4.8 percent.
Colombia's Gross Domestic Product contracted by 0.1 percent in the second quarter from the first quarter for annual growth of 4.3 percent, down from a rate of 6.5 percent in the first quarter.
The Central Bank of Colombia issued the following statement:
"The Board of the Central Bank reaffirmed its commitment to price stability by setting the inflation target for 2015 at 3%, with a range of ± 1 pp. The Board reiterates that monetary policy actions will continue to run for inflation to remain around 3% and communicating that value to be used for legal purposes. Low and stable inflation is the best contribution that monetary policy can make to sustainable growth in output and employment.
At today's meeting also decided to keep interest rates at 4.5% intervention. In this decision, the Board took into account mainly the following aspects:
- New information on economic activity for the third quarter of 2014 ratified the weak global growth. It is expected that external demand mainly driven by continued US economy, while for the euro area low dynamism is projected.China would continue with a moderate slowdown and some partner countries in the region continue to grow at less than their average years recent rates.
- The risk premiums of several emerging countries continue to show a slow decline and continue to depreciate their currencies against the dollar. This, in an environment of slowing economies and a decline in prices of basic goods that some of them exported.
- The international oil prices fell again and remains below the forecast of technical equipment for 2014 and 2015. This has involved a deterioration of the terms of trade of the country, despite international coffee prices remain high. The fall in the terms of trade resulting in a decline in national income.
- In Colombia, recent indicators suggest that supply and demand in the second half of 2014 GDP would grow apace, although at a slower rate than that recorded in the first half of the year. The main thrust would come from domestic demand, while the trade balance would have a negative contribution to growth. With the new information, the technical team maintained its growth forecast for 2014, between 4.5% and 5.5%, 5%, as the most likely figure.
- In October bank lending again recorded a lower rate of annual increase, albeit at a higher rate than nominal GDP growth estimate for the current year. The slower growth the credit provided to businesses, while directed to households (consumer and mortgage) accelerated. All this in a context of weak transmission increases in benchmark interest rate to interest rates on loans.
- In October the annual inflation increased 3.29% and stood in line with expectations by the technical team. Part of this acceleration is explained by an increase in food prices, which is expected to be transitory. The average of the four indicators of core inflation stood at 2.76%.
- Inflation expectations of analysts and implied in the roles of public debt remain stable and close to 3%.
In summary, aggregate demand continues to show strong growth in the near full utilization of productive capacity context. At the same time, inflation expectations remain close to 3%. This occurs in an environment of declining terms of trade and growing uncertainty about the recovery in global economic activity and the cost of external financing, factors that may influence aggregate demand and the exchange rate. Made assessing the balance of risks, the Board considered appropriate to maintain unchanged the benchmark interest rate.
The Board will continue to carefully monitor the behavior and projections of economic activity and inflation in the country, asset markets and the international situation. Finally, he reiterated that monetary policy will depend on the information available."