Colombia

Colombia is adjusting smoothly to a large and persistent oil price shock against the backdrop of a complex external environment. Growth fell in response to policy tightening and lower oil prices but is projected to recover gradually. Inflation rose above the target band due to temporary shocks but has started to moderate and is projected to converge to the band guided by tight monetary policy. Oil-related risks have receded but capital-account risks remain elevated. Colombia’s exposure to financial account shocks increased with higher nonresident participation in the local bond market. A faster-than-expected pace of interest rate hikes in the U.S. could tighten financial conditions in emerging markets. Global policy uncertainty and protectionism could affect global growth and generate spillovers to emerging markets.