Colombia Policy Framework Weakens: Fitch

The central bank of Colombia’s pursuance of multiple objectives in the context of an inflation-targeting regime shows that over the past year the monetary and exchange rate policy framework has weakened, says Fitch. “Higher inflation combined with the recent exchange rate volatility need to be addressed in order to avoid jeopardizing Colombia’s hard-earned macroeconomic stability that has provided the basis for growth, helped stabilize fiscal accounts, reduced financing costs for the sovereign and increased the interest of foreign investors in the country,” says Erich Arispe, associate director in Fitch’s sovereign group. The agency notes the perception that monetary policy is increasingly guided by the central bank’s growing concerns about the pace of COP appreciation and decelerating growth. It fears a second-round inflation effect, through higher salary demands, as well as greater fiscal spending in subsidies and transfers, and increased domestic financing costs for public and private sector. “The central bank is in need of restoring its credibility and clearly indicating that the main objective of monetary policy is inflation,” says the agency.