Nearshore Americas

Colombian Economy Losing Some Dynamism

Source: MarketWatch

The Colombian economy could be slowing down despite posting strong gains in recent months while the risk of a “disorderly adjustment” in Europe remains a threat to Colombia’s economic performance, the central bank said in the minutes from its last monetary policy meeting.

The central bank, which chose to leave unaltered its key interest rate at 4.75% during its Dec. 16 meeting, warned that although the Colombian economy remains “dynamic” there are signs that “momentum could be slowing down.”

Data released after the bank’s meeting showed that the Colombian economy expanded 7.7% in the third quarter, soundly beating the central bank’s projections which called for an increase of at least 6%.

Inflation, meanwhile, remains at the upper half of the central bank’s 2% to 4% target range, although inflation expectations have declined slightly according to recent data cited by the central bank.

Devastating rains in recent months have had an impact on inflation expectations, stoking fears that the torrential downpours have destroyed crops and roads and could lead to higher food prices. “The expectations and projections for inflation are dominated by forecasts for the weather,” the minutes said. “Monetary policy does not have the appropriate tools to respond to this,” the central bank added.

One member in the central bank’s seven-member board voted in favor of increasing the key rate by 25 basis points citing the domestic situation as reason for a new rate increase. A boom in consumer credit along with low interest rates could be a source of “financial imbalances,” this board member said.

The central bank’s decision to keep in check its key rate matched the market’s projections, which overwhelmingly projected that the bank would pause.

Sign up for our Nearshore Americas newsletter:

The central bank started to increase its key rate earlier this year after keeping it at a record low of 3%. Concerns over the strength of the global economy, especially about Europe’s ongoing sovereign debt woes, pushed the bank to halt the rate increases from August to November.




Add comment