Itaú BBA - COLOMBIA – Monetary Policy Meeting: Stable rates retain appeal

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COLOMBIA – Monetary Policy Meeting: Stable rates retain appeal

Dezembro 20, 2019

We believe that the central bank will remain on hold for some time.

In the final monetary policy meeting of 2019, the board of the central bank unanimously decided to keep the monetary policy rate at 4.25%, as widely expected. The decision extended the period of stable rates to 20 months. The tone of the press conference and communiqué remained neutral as board members hint at stable rates for the time being.

The board highlighted the under-control inflation, noting that the supply-shock started to fade in November. Analysts’ inflation expectations continue to point at target convergence. During the press conference, General Manager Echavarria emphasized that the recent social unrest has had a limited impact on consumer prices and highlighted the low pass-through from COP depreciation. Additionally, Echavarria mentioned the technical staff expects the disinflation process would be explained by food price moderation.

Central bankers remain bullish on activity, despite weak global growth. The technical team reiterated its 3.2% growth forecast for this year (Itaú: 3.3%; 2.6% for 2018). Moreover, Echavarria shared the technical staff's expectarion that activity slightly accelerates to around 3.3% in 2020, so the output gap would continue to narrow. 

For now, the current account deficit is not a key risk. The current account deficit is seen above 4.0% of GDP this year (Itaú 4.5% of GDP; 3.9% in 2018), but favorable financing dynamics (through FDI) alleviate any immediate concern. 

We believe that the central bank will remain on hold for some time. As inflation is expected to gradually converge towards the 3% target and the activity recovery slowly consolidates, a policy rate near neutral levels provides the board with sufficient flexibility to respond to significant deviations from its baseline scenario. The next monetary policy decision will take place on January 31, by which time we expect President Duque to have appointed a replacement for the outgoing Mr. Ocampo (returning to academia).


Miguel Ricaurte
Carolina Monzón

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