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

Friday, November 25, 2016 14:05
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    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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