The Banco de la República reduces its intervention interest rate by 50 basic points

At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 50 basic points.  Thus, the base rate for expansion auctions will be 9%. This decision was made despite the call for a greater reduction by some Directors.

The rate of inflation for the consumer in December 2008 was  7.67%, which places it above the target set by the Board of Directors for this year. However, it is expected that the weakness of internal and external demand and the fall of the international prices of basic products will result in lower inflationary pressures in the course of 2009. The Bank trusts that consumer inflation this year will lie within the target range and continue its downward path towards the medium- and long-term objective. (3% +/- 1 percentage point).

The world economy continues to be negative, despite the strongly expansionist policies of many countries. Most of the developed economies are showing a contraction of growth, while those of the emerging countries are also decelerating, in some cases in a drastic manner.

As the world economy grows at a rate lower than its long term tendency and the international prices of basic products fall, world inflation will significantly fall in 2009.

The new information that has become available confirms the weakening of productive activity in Colombia. The latest data on industry and commerce continue to register a decline greater than that expected by the Board in its previous meeting. To this situation are added the effects of a greater deterioration of world activity on productive activity, in the form of lower exports and terms of trade, a decline in levels of confidence and more expensive capital flows.

The Board of Directors believes that conditions exist to continue reducing the intervention rate and consolidate the change of position in monetary policy that began in the last quarter of the previous year.

The Board will continue to undertake a careful monitoring of the international situation,  the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available.