No Intervention: Colombian Central Bank Makes No Cut for First Time Since January, Holds Interest Rate Steady at 5.25%
At its September meeting today, the Colombian central bank left the nation’s key interest rate steady at 5.25%, marking the first time since January that it opted to not make a cut. In a statement, the bank cited the expected uptick in inflation in August and persistent weak economic activity as the reason to hold the interest rate.
Though the rate-cutting cycle may not be over, it is now officially on pause. Prior to today’s meeting, the Banco de la República committee members had voted for reductions in each of the last seven monthly meetings and eight of the last nine dating back to cycle reversal last December.
With August inflation, in year-over-year terms, rising to 3.87% — following the two-year low of 3.40% in July — five of the bank’s seven-member committee voted to hold the rate today. The two remaining members voted for a cut of 25 basis points.
The Banco de República now forecasts inflation to end the year at 4.18% and settle at 3.58% by the close of December 2018.
More troubling than inflation falling outside the target range of between 2%-4%, however, is the continued “weakness of economic activity,” something that the bank said suggests “growth in the third quarter will be low but higher than in the first half of the year.”
Many analysts have forecasted that the Banco de República will make one more cut in the current cycle, although even before today’s meeting several had projected that the next reduction may not come until the early months of 2018.
In its statement, Banco de la República left the door open for a future cut. It stated that “some indicators suggest” that the interest rate is now “close to its neutral level, although there is uncertainty about that level.”
Capital Economics, an economic research firm in London, had projected another cut this month but responded by noting that its aggressive forecast may now be in need of re-evaluation in lieu of recent inflation data.
“The decision to leave rates unchanged was in line with the consensus, but we had expected a 25-basis-point cut to 5.00%,” said Neil Shearing, the firm’s chief emerging markets economist, in a note to investors. “In the end, the fact that inflation ticked up in August seems to have persuaded policymakers to stand pat. But there are good reasons to think that the central bank still has more work to do.”
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