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We Like Valeant Pharmaceuticals for a Trade (Video)

June 24, 2016 by EconMatters   Comments (0)

By EconMatters


Considering it costs $2.5 to $5 Billion from the initial Research phase to bringing a new drug to market, the $32 Billion in VRX Debt given their other assets, and proven drug portfolio makes this stock look cheap here on a valuation basis.

I bet I could find a buyer willing to pay $50 a share for Valeant Pharmaceuticals over the weekend if Bill Ackman wasn`t in such a hole on this stock, and needs a much higher price given the average stock price on his accumulated share stake.

Given that there is going to be further consolidation in this space, and the high costs associated with organically generating new drugs for the marketplace with no guarantees of success - VRX looks like an attractive take-out candidate to me. Their debt is actually in line with many utilities trading at much higher valuations with much lower revenue generation capabilities from both an overall  margins and gross profit standpoint.

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Central Bank News Link List - Jun 24: Brexit vote triggers shock, silence but market chaos averted

June 24, 2016 by CentralBankNews   Comments (0)

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

The Brexit Carnage from a Trader`s Perspective (Video)

June 24, 2016 by EconMatters   Comments (0)

By EconMatters


The surprise Brexit event made for some fun trading with great price action opportunities last night - sort of like being in a hurricane without getting your house destroyed - there is something "energy" in the air.

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Sri Lanka maintains rate, growth in line with expectation

June 24, 2016 by CentralBankNews   Comments (0)

    Sri Lanka's central bank left its key policy rates steady, as expected, saying growth in the first quarter was broadly in line with expectations while inflation is expected to ease and remain in mid-single digits in the medium term.
     The Central Bank of Sri Lanka last raised its key rates, the Standing Deposit Facility Rate (SDRF) and the Standing Lending Facility Rate (SLFR), by 50 basis points in February to 6.50 percent and 8.0 percent, respectively.
     Sri Lanka's inflation rate picked up speed in May to 4.8 percent from 3.1 percent in April, an acceleration that was expected due to May's increase in Value Added Tax (VAT) to 15 percent from 11 percent and the removal of certain exemptions to raise government revenue.
    The International Monetary Fund (IMF) - which earlier this month approved aid of US$1.5 billion, with immediate payment of $168.1 million, to help Sri Lanka meet balance of payment needs until it can adjust its macroeconomic policies - forecasts average inflation this year of 4.1 percent, up from 0.9 percent in 2015.
    For 2017 the IMF sees inflation rising to 5.3 percent before easing to 5.1 percent in 2018, 5 percent in 2019 and the same in 2020.
    Although Sri Lanka's economy expanded by an annual rate of 5.5 percent in the first quarter of the year, up from 2.5 percent in the previous quarter, the IMF said the economy was beginning to show signs of strain from the weak external environment and the challenges of policy adjustment.
    The IMF forecasts annual growth of 5.0 percent this year and the following two years compared with 4.8 percent last year.
    The linchpin of the IMF-led reform program is a reduction in Sri Lanka's fiscal deficit to 3.5 percent of Gross Domestic Product by 2020 from 6.9 percent in 2015 by rebuilding tax revenues, controlling expenditures and putting state enterprises on a more commercial footing.
    Revenue last year rose 1.5 percentage points to 13.1 percent of GDP, but this was mainly due to one-off measures and taxes from a temporary surge in vehicle imports. Meanwhile, expenditures rose by 2.1 points to 19.9 percent of GDP.
    The IMF also wants Sri Lanka to commit itself to a flexible exchange rate that will enable it to adjust to external forces and allow the central bank to rebuild foreign exchange reserves and focus more closely on price stability.
    Sri Lanka's rupee has been facing downward pressure for months due to capital outflows and has been depreciating steadily since late August until early this month when market sentiment improved following the IMF's approval of the Extended Fund Facility (EFF), which the central bank expects should help strengthen the country's external position.
    The rupee was trading at 146.6 to the U.S. dollar today, down 1.7 percent this year.
    Sri Lankan shares have been also been under pressure recently, with the benchmark Colombo index hitting its lowest close in two months on Thursday in response to a downwards revision of Sri Lanka's outlook to negative from stable by Moody's and a government proposal from June 15 to reintroduce capital gains, especially on land sales.

   The Central Bank of Sri Lanka issued the following statement:
   

"According to provisional estimates of the Department of Census and Statistics (DCS), the Sri Lankan economy grew by 5.5 per cent, in real terms, in the first quarter of 2016 compared to the growth of 2.5 per cent recorded in the last quarter of 2015. Economic growth was mainly supported by the expansion of Industry and Services related activities, which grew by 8.3 per cent and 4.9 per cent, respectively, during the first quarter of 2016 in value added terms. Meanwhile, Agriculture related activities recorded a moderate growth of 1.9 per cent during this period. The growth rate recorded in the first quarter was broadly in line with expectations for the year.

As anticipated, inflation increased in the month of May reflecting the impact of the increase in Value Added Tax (VAT) and the removal of certain exemptions applicable on VAT and Nation Building Tax (NBT), as well as the supply side disruptions due to adverse weather conditions. Accordingly, the Colombo Consumers’ Price Index (CCPI, 2006/2007=100) based headline inflation increased to 4.8 per cent, year-on-year, in May 2016 from 3.1 per cent in the previous month, while the National Consumer Price Index (NCPI, 2013=100) based headline inflation also increased to 5.3 per cent, year-on-year, in May 2016 from 4.3 per cent in the previous month. Core inflation as measured by both CCPI and NCPI also increased in May 2016 mainly reflecting the impact of revisions made to the tax structure by the government. In spite of these transitory price movements, inflation is expected to moderate in the period ahead and remain in mid-single digits in the medium term supported by appropriate demand management policies.

In the monetary sector, the year-on-year growth of broad money (M2b) decelerated to 18.2 per cent in April 2016 compared to 18.9 per cent recorded in March 2016. The expansion in credit to the private sector and the government remained key drivers of broad money growth, while credit to public corporations recorded a repayment during the first four months of the year. Credit extended to the private sector by commercial banks grew by 28.1 per cent in April 2016 on a year- on-year basis, although in absolute terms, disbursements in April 2016 were limited to Rs. 27.4 billion compared to Rs. 87.7 billion in the previous month. Short term money market rates displayed some stabilisation, while the upward trend observed in other retail market interest rates continued reflecting the gradual transmission of the monetary policy measures that were taken previously, amidst low levels of rupee liquidity in the domestic money market.

On the external front of the economy, the deficit in the trade account contracted by 2.4 per cent during the first four months of 2016, on a year-on-year basis, as the decline in imports was greater than the contraction in exports. Earnings from tourism were estimated to have increased by around 18.4 per cent during the period from January to May 2016, while workers’ remittances increased by 4.7 per cent during the period from January to April 2016. Gross official reserves were estimated at US dollars 5.6 billion by end May 2016.

Meanwhile, the Executive Board of the International Monetary Fund (IMF) approved a three year Extended Fund Facility (EFF) of SDR 1.1 billion (approximately US dollars 1.5 billion) for Sri Lanka on 03 June 2016 to support the balance of payments (BOP) position and the broad economic reform agenda of the government. Following the approval of the IMF-EFF and the resultant improvement in market sentiments, the Sri Lankan rupee appreciated against the US dollar so far during the month of June 2016. Going forward, the EFF and other multilateral and bilateral credit facilities, along with the planned structural reforms and the realisation of the envisaged non- debt-creating capital inflows, are expected to strengthen the country’s external position. The expected improvements in the fiscal sector will also assist the Central Bank policies in maintaining macroeconomic stability on a sustainable basis.

Taking into consideration the developments discussed above, the Monetary Board, at its meeting held on 24 June 2016, was of the view that the current monetary policy stance of the Central Bank is appropriate, and accordingly, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.50 per cent and 8.00 per cent, respectively. The Monetary Board will continue to closely monitor developments in the domestic as well as global markets and make appropriate adjustments to the monetary policy stance, as necessary."

    www.CentralBankNews.info

An 85 Percent Probability of Black Swan Event in Bond Markets (Video)

June 23, 2016 by EconMatters   Comments (0)

By EconMatters


This is one of the Few times in financial market history that analysts could with high probability predict a black swan market event. The Federal Reserve is going to lose a lot of money on their Bond Portfolio Holdings over the next 10 years.

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Female Business Leaders Need to Bring More to the Table than Just Diversity (Video)

June 23, 2016 by EconMatters   Comments (0)

By EconMatters


We discuss the topic of the Diversity Discussions that have been so prominent in the media lately from a meta analysis perspective.

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Ukraine cuts rate another 150 bps and further cuts likely

June 23, 2016 by CentralBankNews   Comments (0)

    Ukraine's central bank continued to roll back its high interest rates by cutting its policy rate by 150 basis points to 16.50 percent and said it would "proceed with monetary policy easing to support the recovery of economic activity when it is not in conflict with achievement of inflation targets."
    The National Bank of Ukraine (NBU) has now lowered its key rate by 550 basis points this year and by 13.50 percentage points since starting the easing cycle in August 2015.
    From April 2014 through March 2015 the NBU hiked its rate by a total of 23.5 percentage points, with the key rate topping out at 30.0 percent to support the exchange rate of the hryvnia and prevent inflation from getting out of control.
    Inflation in May fell further to 7.5 percent from 9.8 percent in April, in line with the central bank's projections, and a far cry from an inflation rate of 60.9 percent in April last year.
    The deceleration in headline inflation is due to a strengthening of the hryvinia's exchange rate, improved commodity prices and better food supply, while there is "insignificant" upward pressure from demand, the central bank said.
    The rise of the hryvnia along with the sustained slowdown in inflation has also triggered a "significant decrease" in inflation expectations, with the NBU expecting headline inflation to reach its target of 12 percent, plus/minus 3 percentage points, by the end of this year and then 8.0 percent, plus/minus 2 percentage points, by the end of 2017.
    By late 2019 the central bank is targeting inflation of 5.0 percent.
    One of the reasons that inflation will pick up in the second half of this year is due to higher tariffs for public utilities, but the central bank said it has already taken this into account so it will not require a response by monetary policy.
    The hryvnia came under severe pressure in February 2014 following political unrest, the annexation of Crimea by Russia and armed conflict in Eastern Ukraine. Last year it lost 24 percent against the U.S. dollar although capital controls and rate hikes by the central bank slowed its fall.
    The hryvnia started out the year on a weak footing but since mid-March it has been rising and was trading at 24.8 to the dollar today, marginally down from 24.0 at the start of this year.
     A delay in a third tranche of funds from the International Monetary Fund under its $17.5 billion bailout program is keeping investors on the sidelines and the central bank said earlier this month the country risks damaging its reputation and economic stability if it fails to push through reforms that aim to limit the power of vested interests and modernize the economy.
    The IMF is expected to decide on disbursing the aid next month.


    The National Bank of Ukraine issued the following statement:

"The Board of the National Bank of Ukraine has decided to cut the key policy rate to 16.5%, effective 24 June 2016. Further easing of monetary policy fully complies with inflation target for 2016 and 2017 and takes place under conditions of steady inflationary pressure reduction, improved inflation expectations and stable foreign exchange market situation.
In May 2016, headline inflation dropped to 7.5% y-o-y, which was consistent with the NBU’s projections.
Inflationary pressure reduction was of a fundamental nature confirming core inflation slowdown. That was favored by prudent monetary policy and strengthening of hryvnia exchange rate due to favorable world commodity markets situation. In addition, increase of foods supply supported the disinflationary trend.
Domestic demand remains moderate and does not put additional pressure on prices. Thus, in Q1 while recovery of the economic growth y-o-y, as expected, households consumption still remained lower than in the previous year (by 2.2%). According to the NBU estimates, economic growth accelerated in Q2 due to external and investment demand. That was favored by improved global commodities markets situation and better enterprise expectations against the background of internal political stabilization and agreement with the International Monetary Fund at expert level regarding second review of Extended Fund Facility Arrangement.
Favorable foreign economic conditions resulted in increased export earnings and improved foreign exchange market situation. Under these conditions, the NBU using a flexible exchange rate purchased foreign currency to replenish international reserves leaving an opportunity for moderate exchange rate strengthening caused by fundamental factors. In addition, normalization of foreign exchange market situation allowed the NBU to proceed with gradual liberalization of administrative limits.
Gradual exchange rate strengthening along with sustained inflation slowdown caused significant decrease in inflation expectations of households and business increasing control over prices in future.
Therefore, the NBU considers headline inflation targets at level of 12%+/-3 p.p. to be attainable by the end of 2016 and 8%+/-2 p.p. by the end of 2017.
In the second half of this year, the NBU expects inflation to get closer to target level y-o-y due to reflection of higher tariffs for public utilities in statistics. That was already provided by the NBU projections and will not require monetary policy responses.
As before, domestic demand pressure on headline inflation is expected to be insignificant. Improved prospects for grain and other agricultural crops due to favorable weather conditions are among factors supporting moderate price dynamics.
Global commodities markets situation will influence the foreign exchange market. Dividend repatriation, which started on 13 June 2016, will not have significant destabilizing influence, as under provided scheduled payments the supply on the foreign exchange market will be sufficient to meet these needs, according to the NBU estimates.
Completion of the second programme review under the Extended Arrangement remains a key factor for achievement of price stability over the medium term. Thus, government commitment to continue current reforms and their support of the Verkhovna Rada are important.
The NBU will proceed with monetary policy easing to support the recovery of economic activity when it is not in conflict with achievement of inflation targets. Gradual and moderate easing of monetary conditions will be an economy incentive and, at the same time, it will secure inflation from domestic demand pressure. Lower interest rates will raise demand for loans.
The decision to cut the key policy rate to 16.5% is approved by NBU Board Decision No. 88-рш, dated 23 June 2016, On Key Policy Rate.
The next meeting of the NBU Board on monetary policy issues will be held as scheduled on 28 July 2016."


Philippines holds new rate, inflation risks now balanced

June 23, 2016 by CentralBankNews   Comments (0)

    The central bank of the Philippines left its new policy rate, the rate on its overnight reverse repurchase facility (RRP), unchanged at 3.0 percent, along with the other new rates that form the upper and lower bound of its interest rate corridor (IRC) that took effect on June 3.
    Bangko Sentral ng Pilipinas (BSP) said today's decision by its monetary board was based on the view that inflation continues to be manageable - a phrase often used by the BSP - with the latest forecast showing that inflation is likely to settle near the lower end of its target range this year and rise to the midpoint in 2017 and 2018.
    This forecast compares with its statement in May that inflation should settle within its target range this year and 2017. Last month it acknowledged that expectations had declined slightly.
     The BSP, which targets inflation of 3.0 percent, plus/minus 1 percentage point, said the overall balance of risks surrounding its inflation outlook was now deemed to be "broadly balanced," an improvement from last month when the risks were tilted to the downside.
    In addition to the recent recovery of oil prices, the BSP said improved rainfall should ease the upside risks to food and utility prices in coming months, although pending petitions for higher electricity rates remain an upside risk.
    But while the new information supports keeping rates steady, the BSP also said the continued uncertainty surrounding monetary policy in major advanced countries "requires a steady hand on policy settings in order to retain flexibility in the period ahead."
    The central bank introduced its new rate structure to improve the transmission of its policy to money markets and financial markets.
    The IRC comprises an overnight lending facility (OLF) that forms the upper bound of the rate corridor. This rate is 3.50 percent. The lower bound is comprised of the overnight deposit facility (ODF), which is set at 2.5 percent.
    The RRP is the central bank's benchmark rate and was cut to the current level of 3.0 percent from a previous 4.0 percent as part of the change. RRP is set in the middle of the rate corridor.

    Bangko Sentral ng Pilipinas issued the following statement:

"At its meeting today, the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase (RRP) facility at 3.0 percent. The corresponding interest rates on the overnight lending and deposit facilities were also kept steady. The reserve requirement ratios were likewise left unchanged. 
The Monetary Board’s decision is based on its assessment that the inflation environment continues to be manageable. Latest forecasts indicate that average inflation is likely to settle near the lower edge of the 3.0 percent ± 1.0 percentage point target range in 2016 and rise toward the mid-point of the target range in 2017 and 2018. The overall balance of risks surrounding the inflation outlook is now deemed to be broadly balanced. With global oil prices recovering, the risk of second-round effects from lower oil prices is likely to recede in the period ahead. Nevertheless, slower global economic activity remains a key downside risk to the inflation outlook. Given improved rainfall conditions and the shift to neutral weather conditions in the May-July period, the upside risks to food and utility prices due to El Niño are also seen to recede in the coming months. However, pending petitions for adjustments in electricity rates remain an upside risk to inflation. Meanwhile, inflation expectations remain broadly consistent with the inflation target over the policy horizon.
At the same time, the Monetary Board also observed that prospects for global economic growth have remained subdued since the previous meeting, with increased downside risks to global activity. On the other hand, domestic economic activity continues to be firm, supported by solid private household consumption and investment, buoyant business and consumer sentiment, and adequate credit and domestic liquidity. Higher fiscal spending is also expected to further boost domestic demand.
On balance, therefore, the sum of recent new information, particularly on the emerging outlook for inflation and demand conditions, continues to support keeping monetary policy unchanged. At the same time, the continued uncertainty relating to monetary policy prospects in major advanced economies requires a steady hand on policy settings in order to retain flexibility in the period ahead."
    

Norway maintains rate but raises forecasts slightly

June 23, 2016 by CentralBankNews   Comments (0)

    Norway's central bank maintained its key policy rate at 0.50 percent, saying that its forecast for the policy rate was little changed since March and "there are still prospects that the key policy rate may be reduced in the course of the year."
    Norges Bank, which cut its rate by 25 basis points in March, added that growth was likely to remain weak and inflation, which has been higher than 2.5 percent target, should ease due to lower wage growth and a somewhat stronger krone.
    In an update to its quarterly monetary policy report, Norges Bank maintained its forecast for the key policy rate to average 0.5 percent this year but for 2017 it raised it slightly to 0.3 percent from 0.2 percent forecast in the March report.
   For 2018 the policy rate forecast was also raised to 0.3 percent from 0.2 percent and for 2019 the forecast was raised to 0.6 percent from 0.5 percent.
    The central bank also raised its inflation forecast for this year to 3.3 percent from 3.1 percent forecast in March but lowered the 2017 forecast to 2.2 percent from 2.3 percent.
    For 2018 inflation is seen easing further to 1.9 percent from 2.1 percent previously seen and for 2019 to 1.7 percent, unchanged from March.
   The 2016 forecast for growth in mainland Norway was unchanged  at 0.8 percent while the 2017 forecast was lowered to 1.6 percent from 1.8 percent.
   For 2018 and 2019 growth was seen picking up to 2.1 percent and 2.3 percent, respectively, below the March forecast of 2.3 percent and 2.5 percent respectively.
    The central bank again voiced its concern over the rise in Norwegian home prices, saying vulnerabilities may increase if the rapid rise in house prices persists.
    The countercyclical capital buffer for banks is set to rise to 1.5 percent on June 30 from 1.0 percent  following earlier recommendations by the central bank to the finance ministry, which decides on the buffer every quarter.
   The buffer aims to strengthen the financial soundness of banks and their resilience to loan losses in a future downturn. The central bank's assessment of financial imbalances is based on credit-to-GDP ratios and credit has been expanding faster than economic growth for a while.
    While the growth of credit has eased in recent quarters, economic growth has declined so the ratio of credit has risen, and house prices have continued to accelerate, a sign that financial imbalances are building up.
    Norway's economy expanded by an annual rate of 0.7 percent in the first quarter of this year, up from 0.1 percent in the previous quarter while headline inflation was 3.4 percent in May, up from 3.2 percent in April.
    Earlier this month, Norway's Finance Ministery Siv Jensen told reporters that fiscal policy is now helping support the economy after monetary policy had done its job. In May the government said it would use 206 billion kroner of its oil income to help stimulate the economy by 1.1 percentage point.
    The exchange rate of Norway's krone typically fluctuates with crude oil prices and since mid-January it has been firming following a decline since mid-2014.
   The krone firmed further today following the central bank's decision, quoted at 9.29 to the U.S. dollar compared with 9.35 yesterday and 9.60 a the start of the year for a 3.3 percent appreciation this year.

    Norges Bank issued the following statement:

"Norges Bank's Executive Board has decided to leave the key policy rate unchanged at 0.50 percent.
"The key policy rate forecast is little changed since the March Monetary Policy Report," says Governor Øystein Olsen.
Growth in the world economy is moderate, and oil prices have risen further since March. Financial markets have recently been marked by the uncertainty surrounding the outcome of the UK referendum on continued EU membership. Expected policy rates among trading partners have declined since the March Report. The krone has been stronger than anticipated.
Growth in the Norwegian economy is likely to remain weak in the coming period, even though the upswing in oil prices may reduce uncertainty and push up demand somewhat. Should the rapid rise in house prices persist, household vulnerabilities may increase. Inflation has for a period been higher than 2.5%, but lower wage growth and a somewhat stronger krone will weigh down on inflation ahead.
"There are still prospects that the key policy rate may be reduced in the course of the year," says Governor Olsen."

Colombia raises rate 10th month in a row to curb inflation

June 23, 2016 by CentralBankNews   Comments (0)

    Colombia's central bank raised its policy rate for the 10 consecutive month and reiterated its statement from May that it must ensure that the recent shocks to inflation remain temporary and inflation converges towards its target in 2017.
    The Central Bank of Colombia raised its policy rate by another 25 basis points to 7.50 percent, as expected, and has now raised it by 300 points since embarking on a tightening cycle in September 2015. This year it has raised its key rate by 175 points.
    "Increases in food prices and the pass-through of nominal depreciation to consumer prices continue to exert inflationary pressures," the central bank said, showing little inclination to pause in its tightening campaign.
    Colombia's headline inflation rate rose to 8.2 percent in May from 7.93 percent in April, with the central bank again noting that the impact of the El Nino weather pattern on food prices and the magnitude of the depreciation of the peso had moved inflation and inflation expectations away from its target and also triggered indexation mechanisms.
    But core inflation eased to 6.55 percent in May from 6.69 percent and expectations embedded in public debt bonds for 2, 3 and 5 years eased to 4.0 percent and 4.5 percent from 4.3 percent and 4.7 percent in May.
   The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point, and Colombia's government earlier this month raised its inflation forecast for this year to 6.5 percent.
    Colombia's economy has been slowed by low oil and commodity prices with annual growth the first quarter of 2.5 percent down from 3.4 percent in the previous quarter as domestic demand slowed less than expected.
    The central bank said its staff had retained its growth forecast of between 1.5 and 3.2 percent, with 2.5 percent as the most likely figure.

    The Central Bank of Colombia issued the following statement:
   

"The Board of Directors of Banco de la República at today’s meeting decided to increase the benchmark interest rate by 25 bp to 7.50%. For this decision, the Board mainly took into account the following aspects:
  • Annual consumer inflation increased in May, reaching 8.2%. In contrast, the average of core inflation indicators lowered to 6.3%. Analysts’ inflation expectations to one and two years posted at 4.4% and 3.7%, respectively, and those embedded in public debt bonds to 2, 3, and 5 years lowered within a range of 4.0% and 4.5%.
  • Increases in food prices and the pass-through of nominal depreciation to consumer prices continue to exert inflationary pressures. Although these are temporary shocks, the intensity of El Niño and the magnitude of the depreciation of the peso have diverted inflation and inflation expectations from the target, and have activated some indexation mechanisms.
  • The figures for global economic activity suggest a lower-than-expected dynamics of global output. It is likely that the average growth of Colombia’s trading partners in 2016 be lower than the one observed in 2015.
  • The expected pace of adjustment of monetary policy in the United States, international interest rates and country risk premia are lower today than at the beginning of the year. Oil prices remain at higher levels than forecast for the current year. Consequently, the country’s terms of trade and national income could fall less than what was anticipated at the beginning of the year. 
  • Economic growth in the first quarter of 2016 (2.5%) was in line with the forecast by the technical staff from the Central Bank. Domestic demand slowed down less than expected, mainly due to a higher-than-expected dynamic of private consumption. Exports increased more, and imports fell less than forecast. With this information and new data of economic activity for the second quarter, the technical staff kept the growth forecast for 2016 between 1.5% and 3.2%, with 2.5% as the most likely figure.
  • During the first quarter of 2016, the current account deficit was US$ 3,381 million (5.6% of GDP), a figure lower than forecast and than the quarterly values recorded since the beginning of 2014. This lower current account deficit reduces the country's vulnerability to adverse external shocks.  
In summary, the Colombian economy continues adjusting in an orderly manner to the strong shocks recorded since 2014. The current account deficit is correcting gradually, and the risk of an excessive deceleration of domestic demand remains moderate. Inflation has accelerated because of the depreciation of the peso, El Niño, and by the activation of some indexation mechanisms.
 
In this context, the response of the monetary policy must acknowledge that the shocks that have influenced prices are transitory, while being oriented to ensure the convergence of inflation to the 3.0% target (±1 percentage point) in 2017. With this purpose, the Board deemed appropriate to increase the benchmark reference rate by 25 basis points. The adjustment of the monetary policy will continue contributing to the correction of the external deficit.
 
The Board will continue to monitor the expected adjustment of expenditure and its consistency with the long-term income level, the sustainability of the external deficit, and, in general, macroeconomic stability. Similarly, it reaffirms its commitment to maintain inflation and its expectations anchored to the target, acknowledging that there has been a transitory increase in inflation."