Colombia’s Central Bank to Maintain Benchmark Interest Rate at Record Low 1.75%

RIO DE JANEIRO, BRAZIL – Colombia’s central bank board is expected to maintain the benchmark interest at its record low for a fourth consecutive month at its Friday meeting, Janary 29th, – the first this year – as it seeks to continue boosting an economy battered by the coronavirus pandemic.

All 17 analysts surveyed by Reuters on Tuesday said they expect the seven-member board will keep borrowing costs at 1.75% at the meeting, with a majority expecting it holds until December 2021.

The central bank cut 250 basis points from the rate between March and September to counteract the impact of more than five months of coronavirus quarantine and a collapse in consumption.

“We’re not currently expecting to see decisions on interest rates,” said BTG Pactual’s chief economist for the Andean region, Munir Jalil.

BTG Pactual expects Colombia’s gross domestic product to contract 3% in the first quarter, before going on to grow 3.8% during 2021.

Projections for the recovery of Latin America’s fourth-largest economy have begun to deflate due to new quarantine measures and restrictions on movement in Colombia amid a second wave of coronavirus.

“The light at the end of the tunnel is still there, but I now feel we will have to go through the tunnel a little longer before we can get out,” added Jalil, who expects the interest rate to be held at its historic low throughout 2021.

However, some analysts did not dismiss a potential further cut to the interest rate in the coming months.

“We expect it will be a split decision, with two or three members of the board voting for a cut,” said BNP Paribas economist for Colombia and Chile, Felipe Klein.

At the bank’s December meeting, two of the seven board members voted to reduce the interest rate by 25 basis points, arguing that low inflation levels – which ended 2020 at 1.61%, well below the targeted 3% – provided space to do so.