Colombia | As expected, Colombia’s central bank raises its monetary policy rate by 25bp to 4,25%

BanRep’s decision to raise its monetary policy rate by 25 basis points to 4.25% is argued on three main reasons. First, inflation has risen at a faster pace than expected. Second, a gradual and consistent increase in core inflation measures. And third, a robust economic performance towards potential GDP growth. The successive monetary policy interest rate hikes since April have allowed monetary policy conditions to begin to normalize, albeit they still remain expansive. We expect an additional 25bp interest hike in August to reach 4.50% before a pause is sustained until May of next year. The pause is due mainly to an expected GDP growth deceleration during 2H14 and a preference to wait and see the impact of the year to date 125bp interest rate hike. However, the Board’s decision was not unanimous as it had been in previous meetings. Furthermore, robust loan growth (+14% on average) and low real interest rates, reinforce the need for a less expansionary monetary stance.

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