MercoPress. South Atlantic News Agency

Colombia's central bank pauses interest rate cuts as it gauges recovery strength

The bank left its key rate unchanged at a record low of 1.75%, in line with expectations

Colombia became the latest emerging market to end a series of interest rate cuts, joining peers from Brazil to South Africa as it recovers from the pandemic. After the decision, the central bank said that Governor Juan Jose Echavarria will retire early next year.

The bank left its key rate unchanged at a record low of 1.75%, in line with expectations. The board meeting was the first since February when policy makers declined to provide the economy with additional stimulus. The decision was unanimous.

Colombia is likely to leave the rate unchanged for “several months”, Echavarria said in a webcast press conference.

Echavarria, who has headed the institution since 2017, won’t seek another period when his four-year term expires in January, the bank said in a statement, citing personal reasons. His replacement is likely to be a bank insider, said Camilo Perez, chief economist at Banco de Bogota, adding that the announcement came as a surprise.

Finance Minister Alberto Carrasquilla, who chairs the bank’s board meetings, and co-director Roberto Steiner are possible replacements for Echavarria, Perez said. Steiner would have the advantage of bolstering the bank’s independence, since he’s not part of the government, Perez said.

Many emerging markets that slashed interest rates after the pandemic hit are now pausing while they gauge the strength of the recovery. Brazil held its benchmark rate at 2% this week for a second consecutive month, and central banks in Chile, Peru, Russia and the Philippines also held rates at meetings earlier in October.

Colombia’s annual inflation rate rose last month for the first since March, as the government ended subsidies granted in the first months of the pandemic. Consumer prices increased 1.97% in September from a year earlier, which is still below the central bank’s target range of 2% to 4%.

The government lifted most Covid-19 restrictions in September allowing restaurants, hotels and air travel to operate, increasing confidence that the recovery process will gain strength. The urban unemployment rate dropped to 18.3% in September, from 19.6% a month earlier.

Colombia’s economy is set to contract 8.5% this year, according to the central bank, which would be the worst slump in more than a century.