BOGOTA, April 30 (Reuters) – The board of Colombia’s central bank, which meets on Friday, is expected to once again maintain its benchmark interest rate as part of an expansive monetary policy, while also evaluating the country’s economic recovery and inflationary outlook.
A recent Reuters survey found that all 16 respondents expected the bank to hold its benchmark interest rate at a historically low level of 1.75%.
Interest rate stability comes amid bank forecasts of 5.2% economic growth this year, mostly due to the comparison with 2020, when the economy shrank 6.8% due to the effect of the coronavirus pandemic.
Despite the growth forecasts, the bank expects Colombia’s economy will return to normality only toward the end of 2022.
“For now, we see the monetary policy rate as stable due to the long route to recovery for growth and to reduce the great impact on the labor market,” Wilson Tovar, chief economist for brokerage Acciones y Valores, said.
Analysts reiterated that inflation – which reached 1.51% in the 12 months to March – remains far from the bank’s long-term target of 3%, allowing for interest rates to stay put.
However, analysts are beginning to see inflationary pressures due to the recovering global economy and possible elimination of certain sales tax exemptions under a proposed tax reform bill.
Together these factors weigh in favor of rising interest rates at the end of the year.
“If global financial conditions continue to tighten, the risks will move towards anticipated upward movement of interest rates,” said David Cubides, an analyst for bank Itau.
(Reporting by Nelson Bocanegra in Bogota Writing by Oliver Griffin Editing by Matthew Lewis)