Banco de la Republica de Colombia cuts benchmark interest rate to 4½%

By Caroline Salls

Pittsburgh, Jan. 29 – The board of directors of the Banco de la Republica de Colombia decided to reduce its benchmark interest rate by 25 basis points to 4½%, according to a news release.

The board said annual inflation fell less than expected in December and stood at 4.09%. The average of the four basic inflation indicators increased again and stood at 4.66%.

Meanwhile, the bank said inflation expectations registered slight changes, with analysts expecting an average of 3.47% and 3.33% for December 2018 and 2019, respectively.

The board said inflation and basic inflation measures are expected to be reduced in the coming months, partly as a result of the dissipation of the effects of an increase in indirect taxes at the beginning of last year.

According to the release, external demand continues to recover, marked by the developed economies and the main emerging economies. The board said the dollar has depreciated against most currencies, and risk premiums in the region, including Colombia’s, have been reduced.

If current trends continue, the bank said the terms of trade would continue to improve and, together with the expected dynamics of external demand, they would continue to favor the recovery of Colombia’s external revenues.

In addition, the board said economic activity numbers recorded in the fourth quarter of 2017 confirmed weak domestic demand. The bank expects the growth rate in Colombia to increase to 2.7% in 2018 from 1.6% last year as a result of the acceleration of external demand and the effects of previous reductions in interest rates and investment in civil works, among other factors.

If the price of oil remains at current levels for a prolonged period, the board said investment in the sector would increase and national income would improve, but uncertainty about the persistence of these shocks is high.

The decision to reduce the interest rate was approved by four board members, with the remaining three members voting to keep it at 4¾%.

© 2015 Prospect News.
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