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Colombia central bank holds benchmark rate at 4.25%

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Colombia central bank holds benchmark rate at 4.25%

Banco de la República of Colombia on Dec. 21 held its monetary policy rate at 4.25% as it pointed to stable inflation levels and still-weak economic activity.

The central bank said annual inflation stood at 3.27% in November, while the average of core inflation indicators fell to 3.26%. Inflation expectations remain above 3.0%, it noted.

In a statement, the regulator highlighted higher interest rates from the U.S. Federal Reserve and other external factors in justifying its decision to hold rates steady. "The fall in oil prices and the lower outlook for world growth have been reflected in upward pressures on risk premiums and the country's exchange rate."

Despite continued weakness in Colombia's economic activity and uncertainty over the speed of its recovery, the central bank noted that the dynamics of domestic demand in the third quarter turned out "better than expected," mainly due to investment in construction. It also said product expansion would be slightly higher in the fourth quarter.

"Taking this into account, the technical team maintained the projection of economic growth for 2018 at 2.6%, and estimates that the under-utilization of the productive capacity of the country persists," the central bank said.