Inflation target set at 5% for 2009 and no change in the intervention interest rate

At a meeting today, the Board of Directors of the Central Bank of Colombia set the inflation target for 2009 within a range of 4.5% to 5.5%, with the specific target for legal purposes being 5%.  It also set the mid-point of the inflation target-range for 2010 at 4% and is confident that inflation in 2011 will be within the long-term target-range (3% +/- 1 percentage point).

The new inflation forecast takes into account the effects of the dramatic increase in food prices this year and in those for regulated goods and services. These price shocks, which were felt by every economy in the world, produced a sharp rise in inflation and made it impossible to meet the targets.

The monetary policy decisions are intended to return inflation to a path that is convergent with the long-term target.  As for 2009, a reversal or reduction in these relative price shocks and the cumulative effect of the monetary-policy adjustments made since 2006 are expected to reduce annual consumer inflation substantially. Announcement of the new targets demonstrates the Board’s commitment to meeting the long-term target. It also is a fundamental criterion with which to guide decisions on prices and wages in the economy.

The Board of Directors also decided, by a majority vote, to hold the intervention interest rate steady.  Consequently, the base rate for repo auctions will remain at 10%. It was noted that adoption of a less restrictive monetary policy stance will be possible if mid-term inflationary pressures subside.  

The Board reiterated its commitment to supply the liquidity the economy needs by the end of the year, through the mechanisms announced at its last meeting.   The amount of liquidity will take into account the performance of the deposits the national government has with the Central Bank of Colombia.

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.