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Has Colombia's monetary tightening cycle come to an end?

Bnamericas Published: Monday, May 30, 2016
Has Colombia's monetary tightening cycle come to an end?

Colombia's central bank raised its benchmark interest rate by 25 basis points to 7.25% last Friday in what some analysts expect to be the last hike in the current monetary tightening cycle.

The central bank has increased the benchmark rate by 275bp since September in its fight against high inflation.

Friday's decision was in line with the market consensus forecast.

Food price increases and currency depreciation continue to maintain upward pressure on inflation, the central bank said in a release announcing its rate decision.

The 12-month inflation rate slowed to 7.93% in April from 8.0% the previous month, but it remains much higher than the central bank's 2-4% target range.

This year's inflation has been mostly due to the depreciation of the peso, the so called El Niño weather phenomenon and its impact on food prices, and some indexation mechanisms.

In the absence of a renewed slide in the currency, the central bank's work "could now be done," said Capital Economics in a research note.

"All eyes are still on the currency," Capital Economics noted, and this will be the factor that could trigger additional rate hikes.

(Pictured: José Darío Uribe, president of Colombia's central bank)

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