Colombia raises rate 4th time, inflation forecast raised

      Colombia's central bank raised its key interest rate for the fourth time - the sixth central bank to raise rates this week and the 16th this year - citing higher-than-expected inflation and a "significant" increase in inflation expectations.
     The Central Bank of Colombia (CBC) raised its interest rate by 1 percentage point to 4.0 percent - the most aggressive rate hike since it began raising rates in September last year - and has now raised it by a total of 2.25 percentage points.
     In September last year CBC raised its rate by 25 basis points and then followed this up with 50 point hikes in both October and December before today's 100 point hike.
    "This decision is compatible with the dynamism of an economy that has recovered rapidly and does not require the same degree of monetary stimulus that the Bank duly provided throughout the crises caused by COVID-19," CBC said.

     Today's rate hike comes after Colombia's government raised minimum wages by 10 percent - the highest raise in 50 years - which analysts said added pressure on the central bank to raise rates faster.

     CBC has now almost fully unwound its 7 rate cuts in 2020 from February to September in response to the pandemic, with the cuts totaling 2.50 percentage points.
     The bank's board was split in its today's decision, with five voting for the 100-point rate hike while two board members voted for a 75-point increase.
     The board was also split in December, when four members voted for the 50-point rate hike while three members voted for a 75-point hike.

      Inflation in Colombia rose to a 2021-high of 5.62 percent in December, 30 basis points higher than the central bank's staff had forecast, while the measure of basic inflation, which excludes food and regulated items, ended the year at 2.49 percent.

     "The results of inflation in 2021 induced a significant increase in inflation expectations measured from various sources, including non-food inflation," said CBC, which targets inflation of 3.0 percent.

     The bank's staff raised its forecast for headline inflation in 2022 to 4.3 percent from an earlier 3.7 percent and forecast core inflation of 4.5 percent.

     In 2023 CBC expects headline inflation of 3.4 percent and core inflation of 3.6 percent.

     Colombia's economy has recovered swiftly from the pandemic and CBC said indicators for November show continued expansion, which confirms the bank's forecast for growth of close to 10 percent in 2021.

     Economic output last year thus exceeds that of 2019 and excess capacity is close to being eliminated, the central bank added, forecasting growth in 2022 of around 4.3 percent.

     CBC also said the current account deficit would end 2021 around 5.7 percent of gross domestic product, slightly up from the December estimate of 5.6 percent.

     This year, however, CBC expects the deficit to ease to 4.9 percent of GDP.

     Today's rate hike comes after Colombia's government raised minimum wages by 10 percent - the highest raise in 50 years - which analysts said added pressure on the central bank to raise rates faster.

Colombia wraps up week as 11th nation to raise rates

     Colombia's central bank raised its main interest rate for the third time this year, the 14th country this week to tighten monetary policy, as authorities worldwide roll back last year's extraordinary stimulus that was injected to help the global economy overcome the ravages of the COVID-19 pandemic.
      The Central Bank of Colombia (CBC) raised its benchmark interest rate by another 50 basis points to 3.0 percent and has now raised it 1.25 percentage points this year following rate hikes in September, October and Friday.

      Last week 11 central banks - Armenia, Pakistan, Hungary, Chile, Costa Rica, Norway, the UK, Mexico, Russia, Azerbaijan and Colombia - raised their main interest rates, boosting the number of global rate hikes this year to 119 by 40 different central banks.

      In addition to last year's 256 rate cuts by 93 central banks, monetary authorities also injected liquidity into banking systems to ensure financial systems didn't freeze up during the crises, and many embarked on quantitative easing by buying government and corporate bonds to keep rates low with the total number of steps taken to loosen monetary policy amounting to 417.

      Although the world's three largest central banks - the U.S. Federal Reserve, the Bank of Japan and the European Central Bank - this week left interest rates at rock-bottom levels, they still joined the trend toward tighter global conditions to curb inflation and will wrap up some of their crises-era asset purchase programs by March next year.

       Including these three tightening moves, the number of steps taken so far this year by central banks worldwide toward tightening their monetary policy stance, including rate hikes, amounts to 170.

     

     Unlike Colombia's rate hike in October, three of the bank's board members this week voted to raise the rate by an even sharper 75 basis points but the majority of four members voted for the 50 point rate rise.
     In its statement, the board said it decision was based on higher-than-expected inflation in November and rising inflation expectations, and significant economic growth in the fourth quarter of this year that is fueling a rise in the current account deficit.
     The board reiterated its commitment to ensuring inflation returns to its target of 3.0 percent.
     Colombia's inflation rate has risen in the last seven months and rose to 5.26 percent in November from 4.58 percent in October, leading CBC to raise its estimate of inflation this year to an average of 5.3 percent and the forecast for 2022 to 3.7 percent.
      Inflation expectations, even for the medium term, now top the bank's target of 3.0 percent, CBC said.
      "Leading indicators suggest that GDP continued on a significant growth trajectory in the fourth quarter, surpassing pre-pandemic levels," the central bank said, confirming its forecast for gross domestic product growth this year of 9.8 percent.
     Colombia's economy expanded 13.2 percent year-on-year in the third quarter quarter of this year, down from 17.6 percent in the second quarter but in November the bank had raised its forecast for growth this year to 9.8 percent from September's forecast of 8.6 percent.
      Rising domestic demand is fueling imports, with Colombia's imports rocketing an annual 64.9 percent in September, widening the trade deficit by US$2.2 billion in September, the largest gap since 1980.
      This is boosting the country's current account deficit, which rose to US$5.12 billion in the third quarter from $4.27 billion in the second quarter, and CBC raised its estimate for a deficit this year of 5.6 percent of GDP from October's estimate of 5.3 percent.

      Next year CBC expects the deficit to narrow to 4.9 percent in 2022 as global financial conditions tighten.

      After falling to a new record low of 4.17 to the U.S. dollar in March last year after the outbreak of the pandemic, Colombia's peso bounced back through the rest of 20202. 

      But starting in January this year, the peso began to loose strength and dropped to more than 4 peso to the U.S. dollar late last month and then hit 4.03 to the dollar yesterday prior to the rate hike. 

      Following the rate hike, the peso jumped 1.5 percent to 3.97 but remains 13.8 percent below its level at the start of this year.

Colombia holds rate 2nd time, says recovery continues

     Colombia's central bank left its benchmark interest rate steady for the second month, as widely expected, saying the most recent economic data "confirm the expected pace of recovery in activity and this evolution is expected to continue in 2021."

     The Central Bank of Colombia, which last month paused after seven rate cuts from February to September, added loans and interest rates continue to respond to the earlier monetary stimulus and external financing conditions remain favorable for the country's economy.

      The central bank left its intervention rate at 1.75 percent, having lowered it by a total of 250 basis points this year. 

     Since December 2016, when the central bank started lowering the rate from 7.75 percent after inflation began decelerating, the rate has been cut 18 times by 6 percentage points.

      As in October, the central bank's board of directors were unanimous in their decision and in a separate statement, the board said it had maintained the inflation target for 2021 at 3.0 percent, plus/minus 1 percentage points.

      Following the board's meeting last month, the bank's governor, Juan Jose Echavarria, who has headed  the bank since 2017 and overseen the fall in inflation, announced he was resigning when his term expires in January next year for "family reasons."

      Colombia's inflation rate fell further to 1.75 percent in October from a 2020-high of 3.86 percent in March but the central bank said inflation expectations for 2021 to 2023 were still anchored around 3.0 percent.

      Colombia's economy bounced back in the third quarter, expanding by a quarterly 8.7 percent after contracting by 16.1 percent in the second quarter and 1.4 percent in the first quarter.

      The bank has forecast a contraction of 6.5 to 9.0 percent in gross domestic product after growing 3.3 percent in 2019.

      After plunging in March, Colombia's peso has been slowly trending firmer and has risen 7.5 percent so far this month to 3,606.2 against the U.S. dollar today. But since the start of this year, the peso remains down 8.9 percent.

    www.CentralBankNews.info

Colombia cuts rate 7th time in 2020 by narrow majority

      Colombia's central bank lowered its key interest rates for the seventh consecutive month but its board only approved the cut by 4 votes to 3, signaling it is getting close to wrapping up its 3-1/2 year monetary easing cycle.

     The Central Bank of Colombia (BDBR) cut its interest rate by another 25 basis points to 1.75 percent and has now cut it by 250 basis points since the start of this year.

      The three board members that voted against the rate cut voted to maintain the rate while the board of directors was unanimous in its August decision to cut the rate.

      Since December 2016, when the central bank began cutting its rate from 7.75 percent after inflation decelerated from just under 9 percent in July that year, BDBR has cut its rate 18 times by a total of 6 percentage points.

      The close decision mirrors that of analysts that were also split in their expectations to today's decision given the extent of the rate cuts in the current easing cycle, which could ignite inflation expectations.

      In a statement also issued today, the International Monetary Fund's executive board approved Colombia's request to boost its flexible credit line to $17.3 billion, with the 2-year arrangement in effect until April 30, 2022.

     "This higher access, or augmentation, aims to strengthen the country's international liquidity position in the context of the COVID-19 pandemic," the IMF said, adding Colombia intends to draw up to around US$5.3 billion from the facility as part of its financing plan for the fiscal 2020 budget.

      Colombia's inflation rate fell to 1.88 percent in August from 1.97 percent in July, with the central bank saying inflation expectations for the end of 2021 were 2.75 percent and 2-year expectations at 2.05 percent based on the yield of public debt.

      Colombia's economy contracted by 14.9 percent in the second quarter from the first quarter, when gross domestic product shrank a quarterly 2.4 percent, and the central bank confirmed it still expects the economy to shrink between 6.0 and 10.0 percent this year.

     But in response to a relaxation of measures to contain the COVID-19 pandemic, the central bank said economic activity was shrinking at a slower rate, though still shrinking, and there was still a marked deterioration in the labour market and disposable household income.

     Colombia's unemployment rate rose to 20.2 percent in July from 19.8 percent.

     Colombia's peso has been declining steadily since May 2018 though it has bounced back after plunging 13 percent during March. Today the peso was trading at 3,886 to the U.S. dollar, down 15.5 percent this year.

Colombia cuts rate 4th time in 2020 to boost economy

     Colombia's central bank lowered its policy interest rate for the fourth time this year, as expected, as it continues the countercyclical momentum of monetary policy to boost the economy amid what it said was a persistent uncertainty about the outlook for the global economy.
     The Central Bank of Colombia cut its main interest rate by another 25 basis points to 2.50 percent and has now cut it by 175 points this year following earlier cuts in March, April and May.
     A majority of five of the bank's seven-member board voted for the rate cut, the bank said.
     Today's 25-basis-point cut is smaller than the previous cuts this year that were all 50 points.
     Colombia's inflation rate fell to 2.85 percent in May from 3.86 percent in April, and inflation expectations continued to decline to below 3.0 percent, reflecting weak demand, a deterioration of employment and excess productive capacity, the bank said.
     Downward revisions to local and global growth suggest this excess productive capacity will expand and labour markets will deteriorate further, the bank said, adding its main trading partners will only expand slowly during the rest of the year.
     Although conditions in financial markets have improved from the start of the Covid-19 pandemic, there is still great uncertainty about the global economy, the central bank said.
     Colombia's gross domestic product slumped to annual growth of 1.1 percent in the first quarter of this year from 3.5 percent in the previous quarter and on a quarterly basis GDP contracted by 2.4 percent in the first quarter from the fourth quarter of last year.
     Colombia's finance ministry expects the country's economy to contract 5.5 percent this year while the central bank in May forecast a contraction of between 2.0 and 7.0 percent this year, including a 10-15 percent annual contraction in the second quarter.

     www.CentralBankNews.info

Colombia cuts rate 3rd time in 2020 to boost economy

     Colombia's central bank cuts its benchmark interest rate for the third time this year to provide a further boost to the economy as it continues its countercyclical monetary policy stance.
     The Central Bank of Colombia (BDBR) cut its policy rate by another 50 basis points to 2.75 percent and has now cut it by 150 points this year following cuts in March and April.
      In a relatively brief statement, the central bank said the decision took into account a continued decline in inflation expectations due to weak demand, downward revisions of domestic and international growth and an improvement in financing conditions.
     Colombia's inflation rate fell to 3.5 percent in April from 3.86 percent in March.
     The central bank said five of its board members agreed on the 50-point rate cut while the other two members voted to reduce the interest rate by 25 points.

     www. CentralBankNews.info

Colombia cuts rate 2nd time, to boost US dollar sales

     Colombia's central bank cut its rate for the second time this year to continue what it described as a "countercyclical drive of monetary policy" and said it would increase the amount of currency hedging by conducting new sales of U.S. dollars through forward operations for up to US$1 billion.
     The Central Bank of Colombia (CBC) cut its benchmark interest rate by another 50 basis points to 3.25 percent and has now cut it by 100 points this year following a similar cut in March.
     The rate cut was expected by analysts who expect the rate to be cut further to 3.0 percent by mid-year.
      In April 2014 CBC embarked on a tightening cycle, raising its rate 14 times by 450 basis points to 7.75 percent in July 2016.
      But in December 2016 it reversed course, lowering the rate 12 times until it paused in April 2018.
      The rate cut in March this year was the first cut since then.
      In today's statement, CBC said it would also continue to hold foreign exchange swaps for up to US$400 million.
      Earlier this month the International Monetary Fund (IMF) forecast Colombia's economy, which remained resilient last year with growth of 3.3 percent, would contract 2.4 percent this year due to the disruptions from the Covid-19 pandemic and lower oil prices.
      This would be Colombia's first economic recession since 1999. Growth in 2021 is expected to rebound and remain around 3.5 percent over the medium term, supported by domestic demand.
     Colombia's peso fell sharply at the start of March but has stabilized since then and was trading around 3,958 to the U.S. dollar today, down 17 percent this year.
 
      www.CentralBankNews.info

Colombia injects 9 billion pesos by cutting reserve ratio

     Colombia's central bank injected some 9 billion pesos of permanent liquidity into the economy by lowering its reserve requirement on various banking products to stimulate lending.
     The Central Bank of Colombia (CBC), which cut its rate last month for the first time in almost two years, said its board of directors at an extraordinary meeting also authorized the purchase of treasury bonds, known as TES, in the secondary market for up to 2 billion pesos for the remainder of April.
     On March 27, when CBC cut its benchmark rate by 50 basis points to 3.75 percent, the board decided to buy up to 2 billion of treasury bonds during the rest of March.
     The board also authorized the central bank to intervene in the TES forward market to cover against the risk of any "strong" impairment of TES market participants, helping stabilize the market.
     CBC added it would announce any such intervention in a timely manner.
     The reserve requirement on banks' checking and savings accounts will be cut 300 basis points to 8.0 percent while the requirement on fixed term savings of less than 18 months will be cut by 100 points to 3.5 percent.
   
      www.CentralBankNews.info

Colombia cuts rate 1st time in 2 years, boosts liquidity

    Colombia's central bank cut its key interest rate for the first time in almost two years and launched new measures to boost liquidity to ease the financial burden on households and business during the outbreak of the coronavirus and ensure financial markets continue to function properly.
     The Central Bank of Colombia (CBC) cut its benchmark interest rate by 50 basis points to 3.75 percent, the first rate cut since April 2018.
     CBC's board was unanimous in its policy decision, which it said would contribute to the future recovery of domestic demand once markets begin to function normally.
    "The country and the economy are going through an extraordinary and unprecedented situation," CBC said, prioritizing an ample and timely provision of liquidity, both in pesos and U.S. dollars.
     In addition to earlier measures, the central bank on March 30 will auction up to $1 billion in U.S. dollars, with any amount not awarded to be auctioned on the next occasion until the quota is exhausted or until the remaining amount is $25 million.
     On the same day, March 30, CBC will conduct currency swaps of up to $400 million in which the central bank sells U.S. dollars for cash and buys them back in 60 days. Any amounts not awarded on the first day of the auction will also be auction on the next occasion until the quota is exhausted or the amount is less than $25 billion.
     These new measures will raise the balance of FX swaps to $800 million and currency forwards to $2 billion, CBC said.
     Colombia's peso fell sharply on March 11 and 12 in response to the fall in crude oil prices and plunging stock markets worldwide, but has rebounded slightly since then.
     But today the peso again fell in response to the rate cut to 4,024.1 to the U.S. dollar to be down 18.4 percent since the start of this year.
     At an extraordinary board meeting on March 23, CBC decided to inject around $10 billion in permanent liquidity into the financial system through the purchase of private securities issued by credit institutions, with a remaining maturity of less than three years. The first auction took place on March 24.
     CBC also decided to buy up to $2 billion of treasury bonds, known as TES, during the rest of March and to continue carrying out auctions of private securities for $500 billion on days when there are no scheduled auctions by private parties.

    www.CentralBankNews.info

   

Colombia maintains rate, forecast of 3.3% growth in 2020

     Colombia's central bank left its benchmark interest rate steady, as expected, saying inflation is expected to resume converging to its target while it's staff confirmed its estimate of 2019 economic growth of 3.2 percent and its forecast for 2020 growth of 3.3 percent.
      The Central Bank of Colombia (CBC), which has maintained its rate since April 2018, said its board was unanimous in its decision and would carefully monitor inflation, economic activity, the balance of payments and external situation, in particular "the economic effects of the recent declaration of an international health emergency."
      Colombia's inflation rate declined slightly to 3.8 percent in December as supply shocks continue to fade, with inflation expected to resume moving toward CBC's target of 3.0 percent, plus/minus 1 percentage point.
      Colombia's inflation rate accelerated during the first half of 2019 due to higher food prices and a sharp drop in the peso in the first 9 months of the year.
      After bouncing back in December, the peso weakened again this month to trade at 3,419.8 to the U.S. dollar today, down 4 percent this year.

Colombia holds rate, staff still sees 2018 growth at 2.6%

     Colombia's central bank left its benchmark interest rate steady at 4.25 percent, as expected, with the bank's staff maintaining its forecast for 2018 economic growth at 2,.6 percent as the under-utilization of output capacity persists.
     The Central Bank of Colombia (CBC), which has maintained its rate since April, added today's unanimous decision by its board took into account the uncertainty of a recovery of weak economic activity, inflation that is expected to converge to the 3.0 percent target, and the impact on Colombia's economy from changing external conditions.
     In November Colombia's inflation rate eased to 3.27 percent from 3.33 percent in October while there were only slight changes to inflation expectations that around above 3.0 percent.
     Inflation expectations of more than 1 year are around 3.4 percent while those embedded in movement debt are close to 3.8 percent, CBC said.
     Domestic demand in the third quarter was better than expected, mainly driven by higher construction output, and CBC said data for the fourth quarter suggest output will by higher than in the third quarter when gross domestic product grew by 0.2 percent from the second quarter for year-on-year growth of 2.7 percent.
     The board's policy decision was largely expected with a Reuters poll from last week showing that CBC is expected to maintain its rate at least until March next year when it will start raising its rate to contain inflationary pressures and align with international monetary policy trends.
     The poll also showed that expectations for growth this year fell to 2.63 percent from a previous 2.7 percent and were steady for next year at 3.3 percent.

     www.CentralBankNews.info

 

Colombia holds rate, sees steady growth, inflation

      Colombia's central bank left its key interest rate steady at 4.25 percent, as expected, saying data shows that economic activity in the third quarter was similar to that seen in the first half of the year while inflation is converging to the 3.0 percent target.
      The Central Bank of Colombia (CBC), which moved into a neutral stance following a rate cut in January this year, added the bank's board was unanimous in its policy decision.
      Between December 2016 and January this year the CBC lowered its benchmark rate by 325 basis points.
      Colombia's inflation rate rose to 3.23 percent in September from 3.1 percent in August while there was little change in inflation expectations, which remain above 3.0 percent.
       Economic growth among Colombia's trading partners has been somewhat weaker than expected and global risk aversion has risen, slightly increasing the risk premium of emerging countries, including Colombia, leading to further currency depreciation, CBC said.
       Colombia's economy grew by an annual 2.8 percent in the second quarter, up from 2.2 percent in the first quarter but central bank staff estimate that output remains below potential.
       Colombia's current account deficit, which has narrowed in the last two years, is estimated to be similar in proportion to gross domestic product in 2018 as in 2017, the central bank added.
      In 2017 the current account deficit narrowed to 3.3 percent of GDP, down from 4.3 percent in 2016 and 6.4 percent in 2015.
      Colombia's peso has been falling since April this year, with the pace of decline fairly rapid in the last two weeks. The peso was trading at 3,180 to the U.S. dollar today, down 6.2 percent this year.

      www.CentralBankNews.info

     

Colombia cuts rate 25 bps but says easing cycle over

       Colombia's central bank returned to the easing cycle and cut its benchmark interest rate by another 25 basis points to 4.50 percent due to uncertainty over its economic recovery weak but said its board now "considers that the reduction cycle of the interest rate has been completed."
       It is the first rate cut by the Central Bank of Colombia (CBC) this year following 9 cuts in 2017, with the most recent cut in November. The decision to cut the rate by the bank's board was narrow, with four members voting for a cut while the other three members voted to maintain the rate.
       The central bank has now cut its rate by 325 basis points since December 2016 when it embarked on its current easing cycle. The decision to maintain the rate in December 2017 was unanimous.
       "After assessing the risk balance of the weakness of the economic activity and its expected recovery and the pace of convergence of inflation to its target, the Board deemed appropriate to reduce the benchmark interest rate to 4.5%," the bank said in a decision that expected by some, but not all economists.
       "Some indicators suggest that at this level the monetary policy stance is slightly expansionary. With the information available, the Board considers that the reduction cycle of the interest rate has been completed," the CBC added.
       Colombia's growth in the third quarter of 2017 disappointed with an annual rate of 2.0 percent but this was up from 1.2 percent and 1.3 percent in the preceding quarters.
        Data for the fourth quarter confirm that domestic demand remains weak, with the central bank maintaining its growth forecast of 1.6 percent for the full year.
       For 2018 growth is seen accelerating to 2.7 percent, helped by faster external demand, the impact of past rate cuts, investments in civil works, resulting in better use of capacity.
       But the CBC stressed the uncertainty behind its growth forecast, with investments and national income set to rise if oil remains at the current level for a prolonged period of time. With a recovery of oil prices, Colombia's terms of trade and external income are continuing to improve, leading to a forecast of a current account deficit of 3.3 percent in 2018, down from an estimated 3.5 percent in 2017.
       Colombia's inflation rate was largely steady at 4.09 percent in December from 4.12 percent in November, with analysts' forecasts for 2018 and 2019 at 3.47 percent and 3.33 percent, respectively.
      But the CBC said a less-than-favourable behavior of some components of CPI showed there was a risk that inflation might be slower than expected to converge to target. But inflation is still expected to fall in coming months as the impact of lower taxes at the start of 2017 dissipates.

Colombia surprises again with rate cut on weaker growth

     Colombia's central bank surprised economist for the second month in a row by cutting its benchmark interest rate for the ninth time this year and said further rate cuts would depend on the speed with which inflation converges to the target, excess production capacity and the behavior of external factors.
      The Central Bank of Colombia (CBC) cut its key rate by another 25 basis points to 4.75 percent and has now cut it by 275 points this year and by 300 points since embarking on an easing cycle in December 2016.
       In contrast its statement in October, the bank's board did not say that today's easing should not be viewed a part of a continues series of cuts. This guidance that led many analysts to believe the CBC would keep its rate steady today and postpone any easing until early next year.
        Instead, the board said the rate cut was in response to better inflation projections for 2018 and greater economic weakness but international risks limit how much the bank's monetary policy can act in a countercyclical manner.
      As in October, five board members voted to cut the rate by two members wanted to keep the rate.
      The rate cut comes after third quarter economic growth disappointed both the central bank and the government, which lowered its forecast for 2017 Gross Domestic Product to 1.8 percent.
       Finance Minister Mauricio Cardenas, the government's representative on the board, last week said the central bank should cut its rate to boost growth after data showed 2.0 percent annual growth in the third quarter, up from 1.2 percent in the second and 1.3 percent in the first quarter.
       Central bank staff had expected 2.3 percent growth in the third quarter but domestic demand was weaker than expected and recent indicators point towards greater excess capacity.
       Data also confirmed that economic growth remains below potential though external demand is continuing to recover and exports contributed to growth as oil prices rose.
       In October the central bank forecast 1.6 percent economic growth for this year and raised its 2018 forecast to 2.7 percent from 2.4 percent.
       Although the country's current account deficit is continuing to improve, the CBC pointed to international risks that may affect this as the U.S. Federal Reserve is likely to raise its policy rate next month and the exchange rate of the peso has already been volatile and declined in the last month.
       After slumping in 2014 and 2015, Colombia's peso has been more stable since May 2016 and was trading around 2,980 to the dollar today, up 0.7 percent this year.
        Inflation in Colombia rose to 4.05 percent in October from 3.97 percent in September and inflation expectations for December eased to 3.95 percent and for December 2018 to 3.49 percent, the CBC said, adding that inflation was better than expected and below bank staff projections.
       The CBC has forecast 2017 inflation of close to 3.9 percent and 3 percent by end-2018.
        The central bank targets inflation at 3.0 percent, plus/minus 1 percentage point.

Colombia cuts rate 7th time but inflation now in target

    Colombia's central bank cut its benchmark rate for the seventh time to counter economic weakness and the risk of a further economic slowdown from continued low oil prices.
     The Central Bank of Colombia cut its key intervention rate by another 25 basis points to 5.50 percent, as expected, and has now cut it by 200 basis points this year and by 225 basis points since beginning on an easing cycle in December 2016.
      One member of the bank's board of directors voted to keep the rate steady while the other six members voted in favor of the rate cut. As in previous months, the central bank said the current real interest rate was contractionary.
      While the central bank has been trying to boost economic activity and reduce excess capacity in the economy by lowering rates, Colombia's inflation rate in June finally dropped into the central bank's target range for the first time since January 2015.
      Headline inflation eased to 3.99 percent from 4.37 percent in May, within the central bank's target range of 2 -4 percent. Analysts' inflation expectations for December 2017 and 2018 also fell further to 4.28 percent and 3.52 percent, respectively.
      In May the International Monetary Fund forecast end-2017 inflation of 4.1 percent compared with  end-2016 inflation of 5.75 percent.
      The fall in inflation has been helped by a slowdown in food prices and a relative stable exchange rate but the central bank cautioned that the decline in food prices may reverse in the second half of the year so inflation is forecast to increase slightly in the period.
      Colombia's peso was trading around 3,012 to the U.S. dollar today, down 0.3 percent this year.
      Colombia's economy shrank by 0.2 percent in the first quarter of this year from the previous quarter and the central bank said recent data suggested that output in the second quarter would be similar to the first quarter although domestic demand was "somewhat better" than three months ago.
      On an annual basis, Colombia's Gross Domestic Product rose 1.1 percent in the first quarter of this year, down from 1.6 percent in the previous quarter.
      The IMF has forecast 2.3 percent GDP growth this year, up from 2.0 percent in 2016.

Colombia cuts rate 50 bps and lowers growth forecast

    Colombia's central bank cut its benchmark intervention rate by a further 50 basis points to 6.50 percent, a larger cut than expected by most analysts, and said further cuts would depend on how fast inflation falls to its 3.0 percent target and "excessive" economic slowdown.
     It is the third rate cut this year by the Central Bank of Colombia, which has lowered the rate by a total of 100 basis points as inflation continues to decelerate amid a sluggish economy.
    "In Colombia, recent indicators of economic activity, such as retail sales, industrial production and consumer confidence suggest a larger-than-expected weakening of the economy in the first quarter of of this year," the central bank said.
      The bank's staff lowered its 2017 growth forecast to 1.8 percent from 2.0 percent, within a range of 0.8 to 2.6 percent.
     In the last central bank survey, analysts lowered their 2017 growth forecasts to 2.02 percent from 2.3 percent, below the government's target of 2.5 percent. Forecasts for 2018 were cut to 2.8 percent from 3.0 percent.
      Colombia's Gross Domestic Product grew by an annual rate of 1.6 percent in the fourth quarter of last year, up from 1.2 percent in the third quarter.
     The bank's board, this time with only six instead of seven members, was split, with four members approving the 50 basis point cut while two wanted to cut the rate by 25 points.
     Among the reasons for the rate cut, the central bank pointed to growing economic weakness and the risk of excessive deceleration from excess capacity in the economy along with uncertainty about how fast inflation will decelerate to the target of 3.0 percent, within a range of plus/minus 1 point.
    "The current level of the real policy interest is contractive," the central bank said, adding that inflation expectations were also declining.
     Colombia's inflation rate eased to 4.69 percent in March from 5.18 percent in February - the eight consecutive monthly decline - while inflation expectations for December 2017 and 2018 dropped to 4.4 percent and 3.5 percent, respectively.
     Colombia's peso was trading at 2,941 to the U.S dollar today, up 2 percent this year.

Colombia cuts rate 25 bps to counter softer economy

    Colombia's central bank cut its key interest rate by another 25 basis points to 7.25 percent and said inflation, economic activity and international developments would determine the pace of policy normalization.
     It is the first policy easing by the Central Bank of Colombia this year but the second rate cut since December last year for total cuts of 50 basis points. In August 2016 the central bank paused in a tightening cycle after raising rates by 325 points to curb accelerating inflation.
     The central bank said the rate cut reflected a weakening economy and the risks of excessive deceleration, uncertainty about how fast inflation would converge to the bank's 3.0 percent target and a real policy rate that is contractionary.
     Four members of the central bank's board approved the rate cut while two members wanted to maintain the rate. Last month, when the central bank left its rate steady, four board members supported that decision.
    Colombia's inflation rate decelerated for the sixth consecutive month in January to 5.47 percent from 5.75 percent in December while analysts' expectations to December 2017 rose and continue to remain above the 2-4 percent target range. But expectations as expressed in public bonds remained stable and between 3.7 percent and 4.8 percent for the next 2, 3 and 5 years.
    Colombia's economy improved to growth of annual growth of 1.6 percent in the fourth quarter of last year for average 2016 growth of 2.0 percent, higher than the 1.8 percent that the central bank estimated in January.
     But consumer confidence in January fell sharply and if this affects household spending, the growth forecast for this year may be lowered to 2.0 percent, within a range of 0.7 and 2.7 percent, the bank said. In January the central bank also forecast 2.0 percent growth this year.

Colombia cuts by 25 bps, inflation determines next move

    Colombia's central bank cut its key policy rate by 25 basis points to 7.50 percent, the first rate cut since March 2013, and said "future policy decisions will depend on new data on the speed of convergence of inflation to the target and the intensity, nature and persistence of the economic slowdown, among other things."
    In August the Central Bank of Colombia paused after raising its rate by a total of 325 basis points since September, including 200 points this year. After today's rate cut, the rate has been raised by a net 175 points this year.
    In November two of the central bank's seven board members voted for a rate cut and today four members voted for the cut while the remaining three board members voted to maintain the rate.
    Among the factors cited behind the decision to cut rate, the central bank noted faster-than-expected fall in inflation, lower-than-expected economic growth due to lower investment, a slowdown in consumption, and slowing credit issuance, especially commercial credit.
    In the third quarter of this year Colombia's economy grew by 0.3 percent from the second quarter for annual growth of 1.2 percent, the lowest growth rate since the second quarter of 2009.
    Data for the third quarter and recent figures for the fourth quarter suggest Colombia's economy may expand by less than 2.0 percent, the bank said, again revising downward its forecast.
    In November the central bank estimated 2016 growth close to 2 percent, down from September's forecast of 2.3 percent.
    Colombia's inflation rate decelerated to 5.96 percent in November from 6.48 percent in October, continuing the steady decline from a 2016-high of 8.97 percent in July.
    While the fall in inflation is faster than the central bank expected, it added that core inflation indicators and inflation expectations one year ahead still exceed the bank's 3.0 percent target.

Colombia holds rate but 2 members vote to cut by 25 bps

    Colombia's central bank left its key policy rate at 7.75 percent but took note of decelerating inflation and weak economic growth, and said two of its board members had voted to cut the rate by 25 basis points while the other five voted to retain the rate.
    The Central Bank of Colombia paused in its monetary tightening cycle in August after raising its rate by 325 basis points since September 2015, including 200 points this year.
    In September all seven board members agreed to maintain the rate but earlier this month in London Colombia's finance minister, Mauricio Cardenas, said rates could start to fall in the near future as inflation was starting to ease.
    Colombia's inflation rate delerated for the third month in October, easing to 6.48 percent from 7.27 percent in September and a 2016-high of 8.97 percent in July.
    The central bank said the temporary supply shocks in 2014 that pushed inflation above its target were easing at a faster-than-expected pace, illustrated by the lowest annual change in consumer prices and the recent behavior of prices that were affected by the depreciation of the peso.
     Inflation expectations one to two years ahead were 4.18 percent and 3.57 percent, respectively, the bank said, adding its board had confirmed the inflation target of 3.0 percent and reiterated that its policy is aimed at driving inflation down to this target, plus/minus 1 percentage points in 2017.
     As with the currency of many other emerging market currencies, Colombia's peso has dropped since the U.S. Presidential election and was trading at 3,168 today, down 4.0 percent since the election but still up 0.2 percent since the start of this year.
    Increased global uncertainty, and expected gradual tightening of U.S. rates, has pushed up long-term interest rates and lowered oil prices, raising the cost of external financing for Colombia and led to a depreciation of the currency, the central bank said.
    From mid-2014 to February this year, Colombia's peso fell around 45 percent, reflecting the drop in global crude oil prices and the slowdown in China's economy, pushing up inflation.
     Colombia's economic growth has also been decelerating, easing to a lower-than-expected annual growth rate of 1.2 percent in the third quarter of this year, the slowest growth since the second quarter of 2009, from 2.0 percent in the second quarter.
    The central bank said data suggest that growth this year will be close to 2.0 percent, below September's forecast of 2.3 percent. In July the central bank lowered its forecast to 2.3 percent from 2.5 percent.
   
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Colombia pauses in rate hike cycle, sees falling inflation

    Colombia's central bank left its policy rate steady at 7.75 percent, pausing after 11 consecutive rate hikes, saying the effects of temporary supply shocks on inflation and inflation expectations were expected to go into reverse in coming months which, together with the monetary policy actions taken, should help push inflation down to the target range next year.
     The Central Bank of Colombia has raised its rate by a total of 325 basis points since embarking on a tightening cycle in September 2015, including 200 points this year.
    At today's board meeting six members voted to keep the rate steady after assessing the risk balance for inflation and growth, but one board member voted for another 25-point hike.
    "New data on the behavior of prices and aggregate demand will provide more information about the speed of the expected convergence of inflation to the target, and the intensity, nature and persistence of the economic slowdown," the central bank said.
    Colombia's consumer price inflation rate rose to 8.97 percent  in July from 8.6 percent in June while inflation expectations one to two years ahead stable at 4.6 percent and 3.7 percent.
    The central bank, which targets inflation of 3.0 percent, plus/minus 1 percentage point, said the lagged effects of the El Nino weather phenomenon, the high depreciation of the peso in the past and its partial pass-through to consumer prices and the associated activation of price index mechanisms, largely explained the difference between the inflation rate and the bank's target.
   "In the following months, normalization of weather conditions and agricultural supply must generate drops in the prices of foods, especially of perishable items," the bank said.
    The exchange rate of Colombia's peso began depreciating with the fall in crude oil prices in mid-2014 and continued to fall through 2015 until Feb. 11, 2016 when it hit a record low of around 3,437 to the U.S. dollar, down almost 50 percent since levels seen in July 2014. This pushed up import prices and thus inflation.
    But since then, the peso has been slowly appreciating and today it was trading at 2,962.6 to the U.S. dollar, up 7.2 percent since the start of this year.
    A rise in crude oil prices this year has helped Colombia's terms of trade to improve, but they remain below the 2015 average and 2.0 percent annual economic growth in the second quarter - down from 2.5 percent in the first quarter - was less than the 2.6 percent rate that was expected by the central bank's staff.
    Data from the third quarter suggest a downward bias to the growth forecast for this year, said the central bank, which in July lowered its 2016 growth forecast to 2.3 percent from 2.5 percent.