Banco de la República announces the Quantitative Inflation Target for 2015 and maintains the Benchmark Interest Rate at 4.5%

The Board of Directors of the Central Bank of Colombia ratified its commitment with the stability of prices by establishing the target of inflation for 2015 at 3%, with a range of ±1 bp.  The Board reiterates that monetary policy actions will continue to seek that inflation be maintained around 3%, and communicates that said value must be used for legal effects. A low and stable inflation is the best contribution of the monetary policy to sustainable growth of the product and of employment.

The Board of Directors also decided to maintain the benchmark interest rate at 4.5%. In order to reach this decision, the Board considered the following issues:

• The new information of economic activity for the third quarter of 2014 ratified the weak growth of the global economy. It is expected that the external demand would continue to be propelled mainly by the economy of the United States of America, while a poor performance is expected for the euro zone. China would continue to experience a moderate slowdown, while some of its partners in the region would continue to grow at lower rates than their averages in recent years. 
• The risk premia of several emerging countries continue to show a slow deterioration and their currencies continue to depreciate against the US dollar. This has taken place in an environment of slowdown of their economies, together with a downturn in the prices of commodities that some of them export.  
• The international price of oil fell again and continues below the forecast of the technical staff for 2014 and 2015. This has implied a deterioration of the country's terms of trade, in spite of the fact that the international prices of coffee continue to be high. The fall in the terms of trade is reflected in a deterioration of the national income. 
• In Colombia, the most recent indicators for supply and demand suggest that in the second semester of 2014, the GDP would grow at a good pace, although at a lesser rate that the one registered during the first half of the year. The main impulse would stem from internal demand, while the trade balance would contribute negatively to growth. With the new information, the technical staff maintained its projection of growth for 2014 between 4.5% and 5.5%, with 5%, as the most probable outcome.
• In October, banking credit once more recorded a slower pace of annual increase, although at a higher rate than the growth of the nominal GDP estimated for the present year. The slowest dynamism was that of credit to companies, while household credit (consumption and mortgage) accelerated. All this takes place within a context of weak transmission of the increases to the benchmark interest rate towards the loan rates.
• In October, annual inflation increased, posting at 3.29% as expected by the technical staff. Part of this acceleration is explained by an increase in the prices of food, which is expected to be transitory. The average of the four indicators for core inflation posted at 2.76%. 
• The analysts' inflation expectations, as well as those implied in public debt bonds, remain stable and close to 3%.

In summary, aggregate demand continues to show a strong growth in a context close to the full use of the productive capacity. At the same time, inflation expectations remain close to 3%. This takes place within an environment of deterioration of the terms of trade and a growing uncertainty regarding the recovery of the economic activity worldwide and the cost of external financing, factors which may affect the aggregate demand and the exchange rate. Having assessed the risk balance, the Board of Directors deemed appropriate to keep the benchmark interest rate unaltered.

The Board will continue to carefully monitor the behavior and projections of the economic activity and inflation in the country, as well as those of asset markets and the international situation. Finally, the Board reiterates that the monetary policy will depend on the information available.