Colombian Central Bank Interest Rate Raised by 25 Basis Points

September 28, 2015

The new benchmark interest rate level in Colombia, announced just before the past weekend, will be 4.75%.  This month’s rate hike was the first change in 13 months.  The interest rate had been lifted five straight meetings from April through August of 2014 to ensure that inflation settles back within the 2-4% target range.  Actual inflation remains above the ceiling at 4.7% currently, buoyed by one of the fastest declining currencies in the world.  A statement released September 25 makes a number of points.

  • While still anchored, expected inflation is at mounting risk of moving upward given the expanse of of time that actual inflation exceeds the target.
  • “The adjustment of the Colombian economy to the strong income shock derived from the strong fall of the international price of oil has required a substantial depreciation of the peso. This is necessary to reorient sectoral spending and production, leading to adjustment of the country‚Äôs external accounts.”
  • In contrast to the dynamism of risk surrounding inflation, the outlook and risks for growth have not changed materially.  Second-quarter Colombian groth was in fact slightly better than anticipated.

The statement does not leave clues about whether this month’s tightening is the first in a likely series of rate increases such as what followed the increase in April of last year.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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