Banco de la República Holds its Benchmark Rate
At a meeting today, the Board of Directors of Banco de la República agreed to leave its benchmark interest rate at 9.75%.
Inflation in February (1.5%) went beyond the Bank’s forecasts and the market’s expectations, primarily due to higher food prices.
The figures on hand confirm the monetary-policy measures adopted in recent months have achieved their purpose. The growth in credit has slowed, particularly with respect to commercial and consumer loans.
It was emphasized that the Colombian economy continues to grow, as indicated by the major rise in exports, in indicators of installed capacity, and in shipment-balance and confidence indexes in the productive sector.
The international context during the past month was characterized by serious deterioration in the United States economy and its financial system. This has sparked uncertainty about the extent of the recession in that country, how long it will last, and the impact it might have on the world economy. Added to this is the possibility of future problems Colombia might have with its major trading partners.
Despite continued inflationary pressures, the Board believes the worsening external context warrants waiting until more inflation is available before adopting additional monetary policy measures.
Finally, given the uncertainty derived from the current state of the world economy, the Board decided foreign exchange may be purchased through put-option auctions held monthly for US$150 million. This existing mechanism to accumulate reserves allows US$1,800 million to be purchased in one year.
The Board will continue to carefully monitor the international situation and the forecasts for inflation and growth. It reiterated that monetary policy in the future will depend on the new information that becomes available.
