Colombia Weekly

Colombia Weekly

Economics/FX/Interest Rate Teams,Rodrigo Fuenmayor,William Pereira - FX/Rates
Colombia Weekly | 10 Dec 2012 16:12 |

Summary

The minutes show the BanRep’s resolve to remain on hold for a while.

The minutes of November’s meeting (when the bank cut its policy rate by 25bp) appear very similar to the minutes of the October meeting (when the board remained on hold). Both sets of minutes are broadly neutral, in our view.

The latest minutes note that external conditions have improved somewhat. On the domestic front, growth has been decelerating in H2, but the bank has been expecting this. The bank continues to project growth of 4.3% in 2012, which would imply growth deceleration in the second half, following an expansion of 4.8% in H1. Recent data have been mixed, showing improving retail sales, while industrial production reflects weakness, as had been expected.

For 2013, the bank continues to expect near-trend growth. The minutes point out that credit growth has been decelerating, while housing prices remain at record-high levels. Inflation and inflation expectations are near the 3.0% mid-point of the target range.

Exports strengthened further in October.

Exports were 5.8% higher in October than in the year-ago period for a second consecutive month of near 6% y/y growth. In the three-month period ending in October, exports growth averaged 7.3% saar (our seasonal adjustment).

Consumer prices declined 0.14% m/m in November, on a large drop in food prices.

The consensus and we had expected moderate monthly inflation of 0.18% and 0.20%, respectively.

A 0.49% m/m in food prices lowered headline inflation by 0.14pp, and a 0.09% drop in transportation prices subtracted another 0.04pp. Prices in the leisure, housing and education categories were broadly unchanged in the month. Clothing prices rose the most in the month (0.14% m/m).

The November print lowered the annual measure of inflation to 2.8% from 3.1% y/y in the prior month. Thus, inflation fell below the mid-point of the central bank’s 3.0%±1.0pp target range for the first time since August 2011. November CPI data reinforces the consensus view that inflation is not presently an issue, providing space for the central bank to continue what promises to be a long pause.

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