Colombia | Central bank hiked its monetary policy rate in 25bp to 4.0% and doubled its accumulation of reserves for 3Q14

Summary

The central bank’s Board of Directors decided unanimously to raise its monetary policy rate in 25bp to 4.0%. The decision accounted for the faster pace than expected of inflation and the surprising growth of GDP during the first quarter of 2014 (6.4 %). This move had been anticipated by BBVA and the market. Going forward we expect monetary conditions to normalize towards a less expansionary stance to the extent that internal demand remains dynamic. Moreover, we expect the monetary policy rate to reach 4.25% in 2014 and 5.25% in 2015, the latter being regarded as a neutral interest rate by BBVA Research. Finally, the Board decided to double its maximum allowed accumulation of international reserves in the local market to USD 2,000 million during 3T14.

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