Published on Saturday, April 29, 2023

Colombia | Banco de la República increased policy rate by 25bp to 13.25%.

At its April meeting, the Central Bank increased the monetary policy rate by 25bp, bringing it to 13.25%. The vote was split, with 2 members voting in favor of holding rates steady, one in favor of a 50bp increase and 4 in favor of a 25bp increase.

Key points

  • Key points:
  • Inflation: The Central Bank highlighted in the statement that inflation for the month of March remained relatively stable and highlighted the reduction in food inflation. In spite of this, it highlights that services inflation and core inflation continue to push inflation upwards. Regarding inflation expectations, it should be noted that they are slightly reduced in the 12-month term and for the medium term they remain at around 5.0%.
  • Activity: The Bank's Staff improved the expected growth for 2023 to 1.0%. This revision is due to the fact that although the economy is decelerating, it is doing so at a slightly slower pace than anticipated. They highlight the performance of the ISE in the first two months of the year with growth of 5.8% and 3.1% respectively.
  • External sector: On the external front, it is highlighted that the main central banks of developed economies continue with their policy rate increases in order to control inflation. They also highlight the increase of risks in the global financial system. With this, they highlight that in Colombia a moderation in the current account deficit is expected, which would go from 6.2% of GDP in 2022 to 4.1% by 2023.
  • Our view: The Board's decision was in line with our expectation and we recognize in the split decision a signal that brings us closer to the end of the upward cycle of interest rates. The next meeting will allow the Board to observe how inflation evolves in the following months, in which total inflation is expected to moderate, with food inflation slowing and core inflation rising with a lower slope than in recent months. With this in mind, we believe that macroeconomic figures will continue to trend towards a slowdown in activity.

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