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Macro Scenario – Colombia: Contained inflation creates scope for additional monetary easing?

January 14, 2021

A slow rollout of the vaccination program amplifies downside risks to activity.

For the version with all charts and tables, please open the attached pdf file

• 
Record-high new COVID-19 cases amid surging test positivity rates have led to tighter mobility restrictions. A one-week strict country-wide quarantine, along with extended restrictions in most large cities, will likely dampen the activity recovery that had started in May 2020.

• Nevertheless, the benign global environment (including higher oil prices) and favorable developments on the COVID vaccine front, favor a swift bounce following the lifting of current restrictions. We still see GDP growing 5% this year (7% drop estimated for 2020).
• The still large output gap, recent exchange-rate strengthening and favorable inertia support well-behaved inflation and stable rates at a low 1.75% pa for a prolonged period. If the perseverance of the latest wave of the virus results in lengthy lockdowns that undo part of the labor-market recovery, additional rate cuts could materialize. In fact, some board members of the central bank are already calling for additional stimulus.


Miguel Ricaurte
Carolina Monzón


For the version with all charts and tables, please open the attached pdf file



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