Colombian Central Bank Sticks to 3% Inflation Target Rate

Following its monthly meeting this week, the Colombian central bank announced that it will maintain its 3% target rate for inflation and wider target range of 2% to 4%.

After years of elevated results, inflation fell within that range at the beginning of 2018 and remained at or below 3.2% for a six-month stretch throughout the middle of 2018. The year-over-year rate has begun to creep back up, however, reaching 3.33% in October, the highest figure since January.

As inflation began to fall back closer to 3% in the first half of the year, the Bogotá-based Banco de la República seemingly ended an interest rate-cutting cycle that took the nation’s key interest rate down from a high of 7.75% in November 2016 to its current 4.25%.

The most recent cut, of 25 basis points, came in May and the central bank committee members have not made any intervention in subsequent meetings over the past six months.

“Monetary policy actions taken so far are compatible with the process of convergence of inflation to its 3.0% target, and aim at achieving this target in coordination with the general economic policy,” said Banco de la República in a statement this week.

It added that the “board will continue to carefully monitor the behavior of inflation and the forecasts for inflation and economic activity in the country, as well as the international context.”

In mid-November, the Banco de la República forecasted inflation to end 2018 at 3.3%. It also expects 3.3% inflation for 2019, while noting global economic risks and exchange-rate factors that could alter that prediction.

Another economic factor that could alter the trajectory of inflation is the proposed tax cuts by Colombian President Iván Duque. While the has altered its proposal, which is ultimately up to Congress to finalize, early versions of his plan to raise more revenue for the government included value-added tax increases and other provisions that some analysts said could lead to large jumps in inflation.