TEXT-Colombia central bank statement on interest rate decision

BOGOTA, June 28 (Reuters) – Colombia’s central bank board kept the benchmark interest rate at 1.75% for the ninth month on Monday, as part of an expansive monetary policy aimed at supporting economic recovery, in line with expectations.

The following is a Reuters translation of the statement accompanying the bank’s interest rate decision:

In its session today, the central bank’s board of directors unanimously decided to maintain the benchmark interest rate at 1.75%. This decision was made taking into account the following considerations:

In the first quarter of 2021, the economy achieved higher-than-expected growth, a dynamism that was maintained in April, as shown by the economic monitoring index. However, the third wave of COVID-19, and to a greater extent the impact of protests and roadblocks will be reflected in less economic activity during the second quarter.

Despite this, the good economic performance until April justified a revision of the GDP growth forecast for 2021 from 6% to 6.5% in the baseline scenario. Even in this scenario, the level of economic activity would continue to be lower than in 2019. In addition, unemployment and informal employment rates remain at particularly high levels.

Annual inflation in May of 3.3% exceeded forecasts. The upward pressure came from the food group (9.52%), especially from perishable foods (18.16%), due to supply difficulties in various cities. The increase in core inflation, excluding food and regulated items (1.56%), remained below the target and was similar to what was projected. Part of the recent increase in inflation could have some persistence and affect expectations, which remain anchored.

Despite the growth in external demand and the improvement in the terms of trade, we forecast a higher current account deficit, consistent with the better dynamism of domestic demand.

In the United States, inflation surprised to the upside and its expected value remains above the 2% target set by the Federal Reserve. This has generated expectations about the possibility of the start of monetary policy normalization in that country, which would make international financial conditions less favorable and affect risk appetite for investments in emerging economies.

Given the fiscal and public debt situation, if the required fiscal reform in public finances isn’t achieved, access to financing would be compromised and its cost would increase, which would eventually reduce the space for monetary policy to continue supporting the recovery of economic activity and employment.

Under these conditions and taking into account the balance of risks, the board unanimously decided to maintain the monetary policy intervention rate at 1.75%.

Monetary policy decisions will continue to depend on the new information available on the evolution of the aforementioned risks.

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