Banco de la Republica de Colombia raises benchmark rate 25 bps to 7¾%

By Caroline Salls

Pittsburgh, July 29 – The board of directors of the Banco de la Republica de Colombia decided to increase its benchmark interest rate by 25 basis points to 7¾%, according to a news release.

The board said annual consumer inflation stood at 8.6% in June, and the average of the measures of core inflation was 6.5%. Analysts expect inflation to be 4.6% in one year and 3.7% in two years.

The bank said a strong increase in food prices, as well as nominal depreciation and its transmission to consumer prices continue to explain the difference between inflation and the target rates. The board said the effects of a trucking strike on consumer prices will be felt in July, but those effects are expected to fade quickly.

According to the release, global economic activity remains weak, and the average growth in Colombia’s trading partners in 2016 is projected to be lower than that registered in 2015.

The bank said the U.S. Federal Reserve left its reference rate unchanged, and it is likely that the tightening of monetary policy in the United States will occur slowly.

While the price of oil has fallen, the board said it remains at levels above the lows recorded at the beginning of the year. As a result, it is likely that the deterioration in the dynamics of national income will be lower than estimated in the last quarter.

New economic activity numbers suggest that output growth in the second quarter of the year will be similar to that recorded in the first, the release said. Also, the bank said new foreign trade figures indicate that the external deficit continued to fall in the second quarter.

The bank said its technical team expects a further reduction of the deficit in 2016 to $15 billion equivalent to 5.3% of gross domestic product.

The board said the monetary policy recognizes that the shocks that have affected prices are transient, and it seeks to anchor inflation expectations to ensure the convergence of inflation toward the target of 3%, plus or minus one percentage point, in 2017.

© 2015 Prospect News.
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