Colombia’s central bank technical team has adjusted its inflation outlook for the year 2024, revising the forecast to 5.7% from an earlier estimate of 5.5%, according to a quarterly report released on Friday. This new projection remains significantly higher than the central bank’s long-term inflation target of 3%.
The bank’s technical team also forecasts that inflation will approach the 3% target by 2025. These revised projections are instrumental for the central bank’s board of directors as they deliberate on monetary policy decisions.
“In the remainder of 2024 and towards 2025, levels of economic activity could continue to recover, in an environment of external financing conditions that gradually become less tight and a less restrictive monetary policy,” the report stated. This suggests a more optimistic outlook for economic growth as external financial conditions are expected to improve and monetary policies become more accommodating.
As of the end of June 2024, Colombia’s 12-month inflation rate stood at 7.18%, indicating ongoing inflationary pressures in the economy. Despite this, the technical team remains hopeful that inflation will stabilize closer to the 3% target by 2025.
In terms of economic growth, the technical team predicts a 1.8% growth rate for the second quarter of 2024. The government’s DANE statistics agency is scheduled to publish the official second-quarter growth data on August 15.
In response to these economic conditions, Colombia’s central bank has taken significant steps to adjust its monetary policy. On Wednesday, the bank cut its benchmark interest rate by 50 basis points to 10.75%. This marks the sixth interest rate reduction since December, reflecting the central bank’s efforts to stimulate economic activity amid persistent inflationary challenges.
The adjustments in interest rates and inflation forecasts underscore the central bank’s proactive approach to managing the country’s economic health. By carefully monitoring inflation trends and adjusting monetary policies accordingly, the bank aims to navigate the economy towards stability and growth.
As Colombia continues to recover economically, the central bank’s strategic decisions will play a crucial role in shaping the financial landscape. The forecasted easing of external financing conditions and a less restrictive monetary policy environment are expected to support this recovery, fostering a more stable economic outlook for the country in the coming years.
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