Colombia needs to see a consistent path of slowing inflation before considering interest rate cuts, according to the central bank’s longest-serving co-director.
(Bloomberg) — Colombia needs to see a consistent path of slowing inflation before considering interest rate cuts, according to the central bank’s longest-serving co-director.
After the steepest-ever series of monetary tightening, both headline and core inflation should soon start to cool, central bank co-director Roberto Steiner said in interview in Bogota. This doesn’t necessarily mean that policymakers won’t raise interest rates further, he said.
“We should tread carefully and not envision declines in policy rates just because we have one or two favorable readings on headline inflation,” Steiner said Thursday. “We have to be a bit more prudent, a bit more patient because the worst mistake we could make is to reduce interest rates to then have to bring them up again.”
The morning after Steiner made his remarks, the national statistics agency published a report showing that the headline inflation rate registered its first drop in nearly a year in April, to 12.82%. Yet core inflation, a gauge that excludes volatile food prices and is more affected by monetary policy decisions, continued to accelerate last month.
In April, the central bank board lifted its key rate by a quarter percentage point to 13.25%, its highest level since 1999.
See more: Colombia Lifts Key Rate to Most Since 1999
Colombia’s inflation rate has outpaced peers as food prices soared, the peso weakened, and economic growth beat expectations. In March, it reached its highest level in nearly a quarter of a century.
“The economy has been more resilient, and the output gap is still positive, which is something we did not expect to see at this stage of the cycle,” Steiner said.
Social Unrest
Central bank studies showed that transport disruptions during social unrest in 2021 caused long-lasting effects on food prices, the central banker said.
Steiner warned that the 16% increase in the minimum wage this year will make it make it harder for policymakers to get inflation back to its 3% target, adding that the government should be cautious with salary rises in 2024.
Many Colombian economists regard Steiner as being among the more “hawkish” members of the bank’s seven-member policy committee, based on some of his public comments. However, the board’s votes are secret.
–With assistance from Julia Leite and Patricia Laya.
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