Colombia Holds Key Rate at 1.75%, Board No Longer Split
Colombia Holds Key Rate at 1.75% on Concern of Investor Backlash
(Bloomberg) -- Colombia’s central bank voted unanimously to reject arguments for more stimulus, ending the split between board members seen at the previous two monetary policy meetings.
The bank on Friday held its key interest rate at a record low of 1.75% for a sixth straight month, in line with expectations. At the December and January meetings, a minority of two policy makers argued for extra stimulus to shore up the weak economic recovery.
Today’s meeting was the first with co-directors Mauricio Villamizar and Bibiana Taboada, who were sworn in last month.
The recovery stalled at the start of the year, while inflation remains near the lowest levels since the 1950s. Despite this, the majority of the board has voted not to lower borrowing costs at recent meetings, judging that monetary policy is already boosting activity, while further cuts might trigger a destabilizing outflow of foreign capital.
Bank lending is responding to the monetary stimulus, and the growth outlook for this year improved, the bank said in its policy statement. The bank lifted its forecast for 2021 growth to a preliminary 5.2%, from 4.5%.
Elsewhere in the region, Brazil raised interest rates by the most in more than a decade this month, to try to cut short a surge in inflation. Chile may also follow suit this year if mass vaccinations and higher copper prices stoke the economy sufficiently.
Read More: Mexican Doves Waver as Emerging Markets Face Heat to Hike Rates
New Board Members
One of the new board members, Villamizar, said in an interview this month that the risks of extra stimulus include the chance of deterring investment inflows, pushing inflation expectations up and encouraging people to take on risky debt.
The other new co-director, Taboada, also said that the bank must take care not to drive away foreign investors or jeopardize financial stability, though low inflation expectations, weak growth and a high jobless rate could all become arguments for more stimulus.
A third new board member, Jaime Jaramillo, was named last month, but hasn’t yet been sworn in.
Annual inflation accelerated to 1.56% last month, led by food prices and public services, but is still only slightly higher than the 65-year low it reached in November.
The Colombian economy contracted 6.8% last year, the worst slump since records began, and the jobless rate in January was the highest for the month in two decades.
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