The Central Bank of Colombia, which raised its rate by 125 basis points last year to curb inflation, added that the labor market remains strong while investments should moderate despite dynamic civil works.
Colombia's economy expanded by 0.8 percent in the first quarter from the fourth quarter for annual growth of 2.8 percent, the fourth quarter in a row of decelerating growth. In 2014 Colombia's economy grew by 4.8 percent and the central bank has forecast growth of 3.2 percent this year.
"Meanwhile, it is expected, that, over time, the real devaluation of the peso will have a positive impact on the performance of the sectors that export and compete with imports," the central bank said.
Dollar imports in April showed a significant reduction, the bank said, adding that this process is expected to continue in light of moderate growth in domestic spending, along with the impact of the depreciation of the peso and a fall in some international prices.
Colombia's peso started falling against the U.S. dollar in July 2014 and hit a record low of 2,670 in mid-March before rebounding. Today it was quoted at 2,558 to the dollar, down 7 percent this year.
Colombia's inflation rate eased to a lower-than-expected 4.41 percent in May from 4.64 percent in April due to a deceleration in food prices.
The central bank targets inflation of 3.0 percent, plus/minus one percentage point, and analysts forecast inflation this year to average 3.90 percent.
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:
- Recent data suggest a recovery in growth in the United States after a lower than expected growth in the first quarter. The euro area and Japan are showing signs of gradual recovery. China continues to slow while the product of the major Latin American countries growing at low or negative rates. It is likely that the average trading partners Colombia economic growth in 2015 is lower than in 2014.
- Despite the recent recovery in oil prices and the decline in import prices, the terms of trade of Colombia in 2015 will be below last year's levels and permanently affect the dynamics of national income.
- The Colombian economy grew 2.8% in the first quarter, in line with projections by the technical team. Domestic demand slowed but remains dynamic behavior, with growth above 4% due especially to the dynamics of investment. In contrast, net exports subtracted from growth for the sharp rise in imports.
- Data for the second quarter of 2015 suggests that the Colombian economy continues to adjust to new external conditions and that household spending would show moderate growth. This in an environment of strong labor market and real interest rates that remain in expansionary territory. A moderation in investment, although civil works remain dynamic behavior is also expected. Meanwhile, it is expected that, over time, the real devaluation of the peso will have a positive impact on the performance of the sectors that export and compete with imports.
- Dollar imports in April show a significant reduction. Is expected to continue this process of adjustment due to the moderate growth in domestic spending, the effects of the real depreciation of the peso and falling in some international prices.
- Inflation dropped in May to stand at 4.41%, lower than the projected figure by the average of the market and the technical team. The slowdown in inflation is explained by the lower rate of increase in food prices. Annual variations in the prices of regulated goods and services and tradable and non-tradable without food and regulated rose and placed on top of the target range.
- The average core inflation measures completed eight consecutive months of increases and stood at 3.99%.Measures of inflation expectations analysts to one and two years and derived from TES 2, 3 and 5 years are kept in a range between 3.0% and 3.5%.
In summary, the slowdown that began in late 2014 continued in 2015. Inflation fell and expectations remain close to 3%. Domestic spending in the economy continues its adjustment process due to the lower dynamic of national income.The Board will continue to monitor the size of the adjustment and its consistency with the income level of long-term sustainability of the external deficit and, in general, 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. 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. It reiterates also that monetary policy will depend on the information available."