Central Bank of Colombia Cuts Interest Rates by 0.25% to 12.75%

The Central Bank of Colombia’s Board of Directors decided by a majority to cut the monetary policy interest rate by 0.25 percentage points, bringing it down to 12.75%.

Influenced by nine consecutive months of decreasing annual inflation, the decision aligns with the technical team’s forecast, ending at 9.28%.

Inflation drop due to lower food and goods prices; unexpected rise in the service sector, except for dining out.

The Bank noted a decline in inflation expectations across various measures, indicating a downward trend over time.

The monthly analyst survey conducted by the Bank revealed a decrease in median inflation expectations from 5.7% to 5.2% for one year ahead and from 3.8% to 3.6% for two years ahead between December and January.

Similarly, inflation expectations derived from public debt markets also showed reductions for all time frames.

Regarding economic activity, the technical team’s growth estimation remains at 1% for 2023 and 0.8% for 2024.

The projection shows the percentage of GDP for the current account deficit decreasing from 6.2% in 2022 to 2.8% in 2023, then stabilizing at 2.9% in 2024.

The Bank highlighted that the correction of the external imbalance makes the economy less vulnerable to potential global downturns.

The Bank observed improved external conditions, with global inflation decreasing and the world economy decelerating slower than expected.

Colombia’s Economic Landscape in 2023

In 2023, Colombia‘s sovereign risk premium decreased, and the Colombian peso appreciated more than that of comparable countries in the region.

The minimum wage increase for 2024 was higher than expected, affecting the projected price path, especially in the service sector.

Additional risks include the El Niño phenomenon and adjustments in regulated prices.

The Board emphasized that with the observed inflation reduction and today’s decision, the economy continues its necessary adjustment process.

This aims for inflation to meet the target by the first half of 2025. Future decisions will be based on the new information available.