The Central Bank of Colombia, which raised its rate by 125 basis points in 2014 to curb inflation, noted consumer price inflation rose to 4.36 percent in February from 3.82 percent in January, higher than projected by financial markets and the bank's own technical team, mainly due to higher food prices that are expected to decline in the second half of the year.
The central bank, which targets inflation of 3.0 percent plus/minus one percentage point, confirmed that it still sees 2015 likely economic growth of 3.6 percent, down from 4.6 percent in 2014, with the slowdown due to the impact of lower oil prices on national income, exports and investment.
Colombia's 2014 growth was below the central bank's forecast of 4.8 percent while 2013 growth has been revised up to 4.9 percent from 4.7 percent. Annual Gross Domestic Product growth in the fourth quarter of 2014 of 3.5 percent, down from 4.2 percent, was in the lower end of the bank's forecast range.
The Central Bank of Colombia issued the following statement (translation by Google):
"The Board of the Central Bank at its meeting today decided to keep interest rates at 4.5% intervention. In this decision, the Board took into account mainly the following aspects:
- The average growth of Colombia's trading partners in 2015 will remain low but somewhat higher than a year ago.The growth of emerging economies has declined and that of advanced economies shows gradual improvement in Europe and Japan and stability in the United States.
- In 2014 the growth of the Colombian economy (4.6%) was lower than projected by the Bank of the Republic (4.8%), while that of 2013 was revised from 4.7% to 4.9%. Meanwhile, GDP growth in the fourth quarter of 2014 (3.5%) was in the lower range forecasting Bank's technical team.
- 2015 real GDP growth of between 2% and 4%, with 3.6% as more probable figure is expected. The lower expected growth reflects the negative effect of falling oil prices on national income, exports and investment. The amplitude of the forecast range reflects the high degree of uncertainty.
- The devaluation of the peso reflects the general strengthening of the dollar, the effects of falling oil prices and the size of the current account deficit. Devaluation is a stimulus for exports and import-competing sectors and helps to moderate the negative impact of oil prices on the fiscal and external accounts. It also increases the prices in the short term, especially for tradable goods.
- Consumer inflation reached 4.36% in February, higher than projected by the market average and the Bank's technical team number. The increase was due mainly to the higher rate of increase in food prices which are expected to decline in the second half of the year, followed by the increase in prices of tradable goods. The average measures of core inflation stood at 3.53%.
- Based on the estimation of the technical team of the Central Bank Board believes that inflation will converge to its target in the policy horizon. This convergence will start from the second half of 2015.
- Inflation expectations of analysts to December 2015 stood at 3.65% since March and December 2016 and remained relatively stable around 3%. Those derived from debt increased roles and continue in the upper half of the target range.
In summary, in late 2014 the Colombian economy slowed, from a level close to full utilization of productive capacity product. Slowdown is expected to continue in 2015. Inflation increased mainly due to temporary factors and expectations are above 3%. Because of the reduction in oil prices and national income is permanent in nature, domestic spending in the economy should be adjusted. The Board will continue to monitor the size of the adjustment and their consistency with the level of income and long-term macroeconomic stability. It also reaffirms the commitment to keep inflation and expectations anchored to the target, recognizing that there is a transitory increase in inflation.
Made assessing the balance of risks, the Board considered appropriate to maintain unchanged the benchmark interest rate, and reiterates that monetary policy will depend on the information available."