Central Bank of Colombia Raised Interest Rates Again in Inflation-Reducing Campaign

May 29, 2016

Colombian monetary officials late Friday announced a further  interest rate hike of 25 basis points to 7.25%.  It was the ninth increase since September 2015.  The rate was at 4.50% prior to then.  A statement justified the action as follows:

The Colombian economy is adjusting in an orderly manner to the strong external shocks recorded since 2014. The risk of an excessive deceleration of domestic demand is moderate, and there is still an excess of expenditure with respect to national income, which is reflected in a high current account deficit. Inflation has accelerated on account of the depreciation of the peso, El Niño, and by the activation of some indexation mechanisms. 

In this environment, the response of the monetary policy must acknowledge that the shocks which have affected prices are transitory, while being oriented to ensure convergence of inflation to the target of 3.0% ±1 percentage point in 2017. With this purpose, the Board deemed appropriate to increase the benchmark reference rate by 25 basis points. The adjustment of the monetary policy will also contribute to the correction of the external deficit.

Consumer prices had risen 7.9% in the year to April.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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