Friday, January 31, 2020

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.

     The Central Bank of Colombia issued the following statement:

"The Board of Directors of Banco de la República unanimously decided to maintain the Benchmark Interest Rate at 4.25%

In this decision, the Board took into consideration primarily the following information:
  • In December, annual inflation (3.8%) reduced slightly. The supply shocks that have affected inflation are expected to continue fading, and inflation is expected to resume its convergence to the target, as market expectations are reflecting.  Core inflation indicators are close to 3.0%.
  • With the new information on economic activity, the Central Bank's technical staff maintained its estimate for economic growth in 2019 at 3.2%, and its forecast for 2020 at 3.3%.
  • Global growth prospects are moderate; in the United States, the Fed maintained its reference interest rate unaltered.
  • The projection of the current account deficit for 2019 remains above 4.0% of GDP, and continues to be funded mostly by foreign direct investment.
Based on this information, the Board considered the following factors for its decision:
  • The temporary deviations of inflation from the target, uncertainty about the persistence of depreciation of the peso, and its degree of pass-through to domestic prices.
  • The size of the spare capacity and the pace at which it will reduce.
  • The effects of changing external conditions on the Colombian economy.
In this environment, upon assessing the situation of the economy and the risk balance, the Board unanimously decided to maintain the benchmark interest rate unaltered at 4.25%
The Board will continue to carefully monitor inflation and the forecasts of economic activity, as well as the evolution of the balance of payments and the external situation, including, particularly, the economic effects of the recent declaration of international health emergency. Finally, the Board reiterates that monetary policy will continue to depend on the new information available."


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