Colombian Central Bank Leaves Benchmark Interest Rate Unchanged; Colombian Peso Remains Stable Against U.S. Dollar

Banco de la República, the central bank of Colombia, announced on Friday it will be leaving benchmark interest rates at 7.5 percent. The decision to leave interest rates unchanged was approved by four members from the Board of Directors, while the remaining three members voted for a 25-basis-point cut.

Changes in consumer and core inflation, which decreased to 5.75% and 5.60%, was one of a few factors that played into the central bank’s decision to leave rates unchanged. In the press release, the central bank also mentioned that the economic metrics of Colombia’s trading partners have improved more than expected:
“The new figures of global economic activity for the end of 2016 indicate that the average growth of Colombia’s trading partners would have been higher than estimated a quarter ago. With this, it is likely that the recovery of external demand in 2017 be slightly higher than forecast three months ago.”
With the increase in interest rates in the United States, the Colombian peso is one of the few Latin American currencies that has gained ground against the dollar in the last months of 2016, “International long-term interest rates increased, and the country's terms of trade continue to recover. In this context, the peso has appreciated versus the US dollar.,” said Banco de la República.

The COP/USD pair was trading as high as 0.000337, on December 14, 2016:

Chart source:

The central bank said Colombia’s economy was performing better in the fourth quarter when compared to the third quarter, however, the bank went on to explain that “low dynamism” was still present in Q4 of 2016.

While Banco de la República highlighted some positive developments in the Colombian economy towards the end of 2016, the central bank remains concerned about the state of global trade and financial stability, particularly about “global interest rates and the evolution of the US dollar.”

Furthermore, the Colombian central bank said the current account deficit projection for 2016 was higher than previous forecasts. The updated figure for 2016 has increased to 12.6 billion (4.5% of GDP).