Colombia’s central bank sits pat for 4th straight month

Posted on November 25, 2016

Colombia’s central bank on Friday left its benchmark interest rate unchanged at 7.75 per cent for a fourth straight month, as inflation cooled and economic activity slowed.

In August, policymakers halted a tightening cycle that began in September 2015 and pushed interest rates higher by 3.25 percentage points.

Moreover, earlier on Friday, the national statistics agency reported the economy expanded just 1.2 per cent in the third quarter of 2016 versus the same period last year. This was below expectations at 1.5 per cent growth, reaffirming that growth in the region’s fourth largest oil producer continued to ease.

It was the slowest pace of growth since the global financial crisis, and was partly dragged down by a truck driver’s strike. The pace of expansion has cooled from 2.5 per cent growth in the first three months of the year and 2 per cent growth in the second quarter.

In the words of Alberto Ramos at Goldman Sachs:

In all, domestic activity remained weak 3Q2016, with most sectors posting weaker annual growth results compared to the previous quarter. The recent growth moderation has reflected the effects of previous monetary tightening, high inflation prints, gradually softening labor market, declining oil production, weak external demand, and lower fiscal stimulus. Some of these factors are expected to continue to weigh down on domestic activity over the near term.

In early November, the central bank said Colombia’s gross domestic product will grow between 1.5 per cent and 2.5 per cent this year, as the country continues to grapple with slowing economic expansion. The IMF forecasts it will accelerate 2.2 per cent in 2016. The economy grew 3.1 percent in 2015.

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